2/23 Exam Review

Question 1

if US has high inflation

Answer 1

what does it mean for another currency?,
it will increase the demand for the other currency,
supply goes down for that currency

Question 2

interest rates going up with inflation

Answer 2

foreign investors will come in to invest because of the inflation

Question 3

interest going lower

Answer 3

foreign dollars go out of the US

Question 4

Ch 3

Answer 4

…

Question 5

why would you want to invest in a currency in a money that depreciates

Answer 5

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

Question 6

when economic conditions strengthen

Answer 6

people want to invest and grow,

Question 7

money market securities

Answer 7

one year max, not vulnerable to certain types of risk, but are to exchange rates

Question 8

Eurocredit loans

Answer 8

Euro loans

Question 9

LIBOR london interbank offer rate

Answer 9

.

Question 10

ted spread

Answer 10

difference between Libor rate and the other float rate….

Question 11

syndicate

Answer 11

the investment bankers go in together , people working together

Question 12

Basel Accord

Answer 12

banks must maintain capital equal to at least 4% of their assets

Question 13

bond market

Answer 13

corporations use this when they can’t go to the bank for financing

Question 14

Euro Bonds

Answer 14

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

Question 15

when economic conditions weeken

Answer 15

demand for that currency goes down

Question 16

bonds

Answer 16

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

Question 17

Greek Crisis on Bonds

Answer 17

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

Question 18

American Depository Receipts(ADR)

Answer 18

certificates representing bundles of stock, can be traded just like shares of stock

Question 19

arbitrage

Answer 19

buy one and sell the other

Question 20

SOX

Answer 20

companies had to be more transparent, many people moved their stocks into the UK to avoid the SOX laws

Question 21

look at the powerpoints

Answer 21

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