Chapters 10 and 11-Foreign Exchange and International Monetary Theory

Question 1

ways to hedge against currency exposure/risk

Answer 1

forwards, options, limit orders, and currency swaps

Question 2

when you negotiate with a bank the exchange rate and promise to exchange on a certain date in the future

Answer 2

forward contracts

Question 3

when you negotiate with a bank the exchange rate but have the option of not exchanging the money on that date

Answer 3

option contracts

Question 4

the currency in which you do business

Answer 4

functional currency

Question 5

any other currency other than your functional currency

Answer 5

foreign currency

Question 6

the currency that is used when a company is reporting their financials

Answer 6

reporting currency

Question 7

impact of currency exchange rates on the reporting accounting sheets; present value of past events

Answer 7

translation exposure

Question 8

the exchange rate that you would get at a certain moment

Answer 8

spot exchange rate

Question 9

what goes on with people who work with the exchange rates; the people work both sides of the exchange rate and profit off of the difference

Answer 9

arbitrage

Question 10

what you think the exchange rate will be in the future

Answer 10

forward exchange rate

Question 11

foreign currency is the variable and the domestic is fixed

Answer 11

indirect quote

Question 12

foreign currency is fixed and the domestic is vairable

Answer 12

direct quote

Question 13

what impacts currency movements

Answer 13

inflation, unemployment, and interest rates

Question 14

the effect if any of interest rates on currency

Answer 14

international Fisher effect

Question 15

if experiencing a high inflation the banks still need you to deposit money so since there is a higher inflation rate they offer a

Answer 15

higher interest rate

Question 16

what costs more and why? an option or a forward

Answer 16

an option because the bank is taking on the currency risk

Question 17

like having a higher deductible; like forward contracts but not triggered immediately; bear some of the risk but at a certain point the bank will step in

Answer 17

limit order contracts

Question 18

for major companies that are in and out of currencies all the time; simultaneous purchase and sale of currency at triggered dates in the future; sometimes banks and governments do this too

Answer 18

currency swaps

Question 19

looking at unemployment in an economy; if unemployment gets too low then _____ will start creeping into the economy

Answer 19

Phillips curve; inflation

Question 20

the international foreign exchange market place affects the rate

Answer 20

floating exchange rate; free floating

Question 21

when a country pegs its currency to another’s; typically happens with smaller countries

Answer 21

pegged exchange rate

Question 22

where two countries agree to fix their exchange rates agains one another; both sides have to agree

Answer 22

fixed exchange rate

Question 23

like floating but government tries to hold the value of their currency within a certain range

Answer 23

dirty float system

Question 24

the official currency of the people’s republic of China

Answer 24

renminbi; RNB

Question 25

the unit denomination within the chinese currency

Answer 25

yuan