2/23 Exam Review Flashcards
if US has high inflation
what does it mean for another currency?,
it will increase the demand for the other currency,
supply goes down for that currency
interest rates going up with inflation
foreign investors will come in to invest because of the inflation
interest going lower
foreign dollars go out of the US
Ch 3
…
why would you want to invest in a currency in a money that depreciates
if it is a loan and you have to pay it back, it will cost less to pay back the loan if your currency is appreciating
when economic conditions strengthen
people want to invest and grow,
money market securities
one year max, not vulnerable to certain types of risk, but are to exchange rates
Eurocredit loans
Euro loans
LIBOR london interbank offer rate
.
ted spread
difference between Libor rate and the other float rate….
syndicate
the investment bankers go in together , people working together
Basel Accord
banks must maintain capital equal to at least 4% of their assets
bond market
corporations use this when they can’t go to the bank for financing
Euro Bonds
US bonds less regulated) features of: bearer bonds - non traceable annual coupon payments convertible or callable denominations of Eurobond: commonly denominated in a number or currencies Underwriting Process: multinational syndicate; simultaneously placed in many countries
when economic conditions weeken
demand for that currency goes down
bonds
when interest rates go up bond prices go down
exchange rate risk:
liquidity risk: if there is a big market it could be sold more easily
credit risk: potential for default of the company on the bond
Greek Crisis on Bonds
Greece defaulted on their bonds, and they were bailed out
it weekended some other European countries
forced creditors to recognize that it could be bad
American Depository Receipts(ADR)
certificates representing bundles of stock, can be traded just like shares of stock
arbitrage
buy one and sell the other
SOX
companies had to be more transparent, many people moved their stocks into the UK to avoid the SOX laws
look at the powerpoints
….
