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International Finance Sir king > Chapter 1 > Flashcards

Chapter 1 Flashcards

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1
Q

An exchange rate system in which a currency’s value
is allowed to fluctuate in response to market forces.

A

Floating Exchange rate

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2
Q

An exchange rate system in which the price of one currency’s
is fixed relative to another country by government authorities.

A

Fixed exchange rate

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3
Q

A hybrid currency system in which a government loosely fixes the value of the national currency relative to one or more other countries.

A

Manage Floating Rate system

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4
Q

An exchange rate system in which each unit of the domestic currency is backed by a unit of some foreign currency.

A

Currency Board Arrangement

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5
Q

An exchange rate quoted in terms of units in domestic currency per unit of foreign currency.

A

Direct Quote

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6
Q

An exchange rate quoted in terms of foreign currency per unit of domestic currency.

A

Indirect quoted

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7
Q

A currency ?? when it buys less of another currency than it did previously.

A

Depreciate

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8
Q

A currency ??? when it buys more of another currency than it did previously.

A

Appreciate

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9
Q

The exchange rate that applies to immediate currency transactions.

A

Spot Exchange Rate

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10
Q

The exchange rate quoted for a transactions
that will occur on a future date.

A

Forward Exchange Rate

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11
Q

When one currency buys more of another on the on the forward market that it buys on the spot market.

A

Forward Premium

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12
Q

When one currency buys less of another on the on the forward market that it buys on the spot market

A

Forward Discount

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13
Q

An exchange rate between two currencies calculated by taking the ratio of the exchange rate of each currency.

A

Cross Exchange Rate

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14
Q

A trading strategy in which traders buy a currency in a country where the value of that currency is too low and immediately sell the currency in another country where the currency value is too high.

A

Triangular Arbitrage

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15
Q

The world’s largest financial market

A

Foreign Exchange Market

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16
Q

Market Participants of Foreign Exchange

A

Exporters & importers
Investors
Hedgers
Speculators
Dealers
Governments

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17
Q

To pay bills denominated in foreign currency or to convert foreign currency revenues back into the domestic currency

A

Importers & Exporters

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18
Q

When they seek to buy and sell financial assets in foreign Countries

A

Investors

19
Q

influence currency values when they take position to offset the risks of their existing exposures to certain currencies

A

Hedgers

20
Q

Sell a currency if they expect it to depreciate and buy if they expect it to appreciate.

A

Speculators

21
Q

To put upward or downward pressure on currencies as circumstances dictate.

A

Government

22
Q

Types of Parity Conditions

A

❖Forward-Spot Parity
❖Purchasing Power Parity
❖Interest Rate Parity
❖Real Interest Rate Parity

23
Q

refer to the economic theories that link exchange rates, price levels (inflation), and interest rates.

A

International Parity

24
Q

term used to describe when two things are equivalent to one another

A

Parity

25
Q

is any equation expressing the relation between arbitrage-free prices for spot and forward delivery

A

Spot-forward Parity

26
Q

the current exchange rate

A

Spot rate

27
Q

the rate at which a bank agrees to exchange one currency for another in the future

A

Forward rate

28
Q

are simply price relatives that show the ratio of the prices in national currencies of the same goods or services in different countries.

A

Purchasing Power Parity

29
Q

A theory that says that identical good trading in different markets must sell at the same price.

A

Law of one price

30
Q

An equilibrium relationship that predicts that differences in risk-free interest rates in two countries must be tied to differences in currency values on the spot and forward markets.

A

Interest Rate Parity

31
Q

simply means that risk free investments should offer the same return after converting currencies everywhere.

A

Interest Rate Parity

32
Q

designed to exploit deviations from interest rate parity to earn an arbitrage profit.

A

Covered Interest Arbitrage

33
Q

is a strategy in which an investor uses a forward contract to hedge against exchange rate risk.

A

Covered Interest arbitrage

34
Q

An equilibrium relationship that predicts that the real interest rate will be the same in every country. This means that investors should earn the same real rate of return on risk-free investments no matter the country in which they choose to invest.

A

Real Interest Rate Parity

35
Q

The risk that movements in exchange rates will adversely affect the value of a particular transaction.

A

Transaction Risk

36
Q

The risk that exchange rate movements will adversely impact reported financial results on a firms financial statements.

A

Translation Exposure

37
Q

The risk that a firm’s value will fluctuate due to exchange rate movements.

A

Economic Exposure

38
Q

An equilibrium relationship that predicts that differences in risk-free interest rates in two countries must be tied to differences in currency values on the spot and forward markets.

A

Interest Rate Parity

39
Q

An equilibrium relation- ship that predicts that the real interest rate will be the same in every country

A

Real Interest Rate Parity

40
Q

The process by which investors determine the value of a potential investment project.

A

Capital Budgeting

41
Q

is the price at which the currency dealer is willing to sell foreign currency

A

Ask price

42
Q

is the price at which the dealer is willing to buy currency.

A

Bid Price

43
Q

To put upward or downward pressure on currencies as circumstances dictate.

A

Government

44
Q
A

International Finance Sir king (3 decks)

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