Currency and Exchange Rate Concepts Flashcards
The value of one currency in terms of another currency.
Exchange Rate
The quoted price for a unit of foreign currency that will be exchanged immediately.
Spot Exchange Rate
The quoted price for a unit of foreign currency that will be exchanged at a future date.
Forward Exchange Rate
The exchange rate system where the value of a currency fluctuates based on supply and demand.
Floating Exchange Rate
The exchange rate system where the government sets and maintains the currency value.
Fixed Exchange Rate
The economic process where a currency loses value in a floating exchange rate system.
Depreciation
The economic process where a currency gains value in a floating exchange rate system.
Appreciation
The act of a government intentionally lowering the value of its currency in a fixed exchange rate system.
Devaluation
The increase in the stated par value of a fixed currency set by the government.
Revaluation
The type of exchange rate where the home currency price is given for one unit of foreign currency.
Direct Quotation
The type of exchange rate where the foreign currency price is given for one unit of home currency.
Indirect Quotation
The rate at which a bank converts home currency into foreign currency.
Sell Rate
The rate at which a bank converts foreign currency back into home currency.
Buy Rate
The process of protecting financial transactions from exchange rate risk using hedging tools.
Hedging
The type of contract that locks in an exchange rate for a future currency transaction to reduce risk.
Forward Contract
