Economics Flashcards
What is forward premium and forward discount
Rule for fx conversion
Formula for MtM value of forward currency contract
When does covered interest rate holds? What is the formula?
When forward premium or discounts offsets differences in interest rates
When does covered interest rate holds? What is the formula?
When forward premium or discounts offsets differences in interest rates
Uncovered interest rate parity formula and key assumption
Investor is risk neutral, demands no additional return for exchange rate risk when investing in another country with .
% E = Ra - Rb
A currency with a higher interest rate should depreciate relative to a currency with lower interest rate
Formulas for domestic and international fisher relation
Fisher relation
Rnominal = Rreal + inflation
Intl Fisher relation
RnominalA - RnominalB = inflation A - inflation B
Definitions of PPP, absolute, relative PPP and Ex-ante version of PPP
PPP law that identical goods should have the same price in all locations
Absolute PPP - law of one price is correct in average (basket of goods, ex CPI)
Relative PPP - changes exchange rate reflects inflation differential. It holds approximately in the long run for the relation on exchange rates and inflation.
Ex-ante PPP - equals relative PPP using expected instead of actual inflation
Effects on FX from monetary and fiscal policies in countries with high and low capital mobility
Effects on currency from a higher interest rate in the uncovered interest rate parity and mundell Fleming model.
What is potential GDP?
How to measure growth
According to cobb douglas production function
Define 3 growth theories
When is regulation needed?
What is prudential supervision?
Difference btw self-regulatory bodies (SRB) and self regulating organizations (SRO)
What is regulatory capture and regulatory arbitrage?
What are the 3 types of regulations?
What is carry trade and risk associated with
Return = interest on investment - funding cost - currency depreciation
Uncovered interest parity must not hold.
Investment of negative skewness and exces kurtosis (fat tails)
Current account deficits lead to depreciation of domestic currency via the following mechanisms (current acc influences):
Flow/supply mechanism - import and exports
Portfolio balance mechanism - when investor countries decide to rebalance their investment portfolios
Debt sustainability mechanism - capital account surplus to compensate current account deficit may lead to an unsustainable level of debt
