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FIN 4550 > Ch 3 > Flashcards

Ch 3 Flashcards

1
Q

foreign exchange dealers

A

serve as intermediaries in the foreign exchange market

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2
Q

spot rate

A

the exchange rate at which one currency is traded for another in the spot market is known as the spot rate

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3
Q

interbank market

A

market of banks buying and selling currency between each other

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4
Q

bid

A

buy quote, is always less than the ask price

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5
Q

ask

A

sell quote

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6
Q

bid/ask spread

A

(ask rate - bid rate)/ask rate

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7
Q

direct quote

A

number of dollars per unit of other currency

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8
Q

indirect quote

A

1/direct quote

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9
Q

cross exchange rate

A

dollar value of currency1/dollar value of currency 2

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10
Q

forward contract

A

agreement to buy currency in the future

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11
Q

forward rate

A

rate in the future to buy currency at

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12
Q

forward market

A

market with forward contracts

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13
Q

currency futures contract

A

specifies a standard volume of a currency to be exchanged on a settlement date

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14
Q

futures rate

A

rate for the futures contract

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15
Q

currency call option

A

provides the right to buy a specific currency at a specific price(strike price or exercise prices)

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16
Q

currency put option

A

right to sell a specific currency at a specific time

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17
Q

eurodollars

A

US dollars deposited in European banks

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18
Q

petrodollars

A

dollar denominated deposits in europe from OPEC

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19
Q

OPEC

A

Organization of the Petroleum Exporting Countries

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20
Q

London Interbank Offer Rate (LIBOR)

A

rate most often charged for every short term loan between banks, sometimes for one day loans

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21
Q

Asian money market

A

US dollars deposited in Asian banks

22
Q

international money market securities

A

when MNC’s and government agencies issue short term debt 1 year or less its this

23
Q

Eurocredit loans

A

loans of one year or longer that are extended to MNC’s or gov agencies in Europe are called this

24
Q

Eurocredit market

A

market for long term loans in Europe

25
Q

syndicate

A

group of banks working together to provide a loan

26
Q

Single European Act

A

gave rights to bank throughout Europe and determined common regulations

27
Q

Basel Accord

A

deal made by twelve banks promising to keep capital of at least 4 percent of their assets

28
Q

foreign bond

A

issued by a borrower foreign to the country where the bond is placed

29
Q

parallel bonds

A

currency denominated in the country where it is sold

30
Q

eurobonds

A

bonds that are sold in countries other than the country whose currency is used to denominate the bond

31
Q

floating rate notes

A

have a variable rate provision that adjusts the coupon rate over time according to prevailing market rates

32
Q

Yankee stock offereings

A

non US countries issue bonds in the US and call them these

33
Q

American Depository Receipts (ADR’s)

A

certificates representing bundles of the firm’s stock, Foreign currency * spot rate

34
Q

SOX effects

A

it drove many foreign companies out of the stock exchange

35
Q

Ch 4

A

do it

36
Q

depreciation

A

decline in a currency’s value

37
Q

appreciation

A

increase in currency value

38
Q

percent change in foreign currency value

A

(current spot rate - old spot rate)/old spot rate

39
Q

equilibrium exchange rate

A

idea that tells us how to forecast effects of currency changes

40
Q

demand for currency

A

countries buy more foreign goods when the foreign currency is worth less

41
Q

supply of currency

A

countries buy more of a currency when it’s worth less so there is less supply, when the currency is worth more there is more supply

42
Q

increase in demand

A

price of a foreign currency goes up, supply will increase

43
Q

decrease in demand

A

price of a foreign currency goes down, supply will drecrease

44
Q

increase in supply

A

price of a foreign currency goes down, supply will decrease

45
Q

decrease in supply

A

price increases, supply will increase

46
Q

increase in inflation of a foreign currency in relation to the US dollar

A

demand decreases, supply increases, equilibrium value will decrease

47
Q

increase in US interest rates

A

US investors will reduce their demand for foreign currency, supply of foreign currency will increase, equilibrium rate will decrease

48
Q

real interest rate

A

nominal interest - inflation rate

49
Q

income level increases

A

demand for the foreign currency increases, supply stays the same, equilibrium increases

50
Q

government controls

A

can change exchange rates by imposing foreign exchange barriers, trade barriers, intervening, affecting other variables like inflation etc

51
Q

expectations

A

if expectations are favorable people will invest and stay where they are, if they are unfavorable they will get out and take their money somewhere else this can cause negative pressure to be put on that currency

52
Q

carry trade

A

when people try to capitalize on a difference between interest rates of two countries

FIN 4550 (23 decks)

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