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Global Finance and Electronic banking > Exam of Ocay (2nd) > Flashcards

Exam of Ocay (2nd) Flashcards

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1
Q

S1: One way to test the PPP theory is to choose at least one country and compare the differential in the inflation rates within the country to the percentage change in the foreign currency’s value during several time periods

S2: One way to test the PPP theory is to choose two countries and compare the differential in their inflation rates to the percentage change in the foreign currency’s value during several time periods

A

FALSE,TRUE

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2
Q

In this exchange rate system, their home currency’s value is attached to a foreign currency or to some unit of account

A

PEGGED

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3
Q

S1: The idea behind PPP theory is that as soon as the prices become relatively lower in one country, consumers in the other country will stop buying imported goods and shift to purchasing domestic goods instead

S2: The idea behind PPP theory is that as soon as the prices become relatively higher in one country, consumers in the other country will continue buying imported goods and shfft to purchasing domestic goods instead

A

FALSE; FALSE

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4
Q

This is the process of capitalizing on the interest rate differential between two countries while covering your exchange rate risk with a forward contract

A

COVERED INTEREST ARBITRAGE

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5
Q

This represents the relationship between the annualized yield of risk-free debt and the time to maturity at a given point in time

A

YIELD CURVE

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6
Q

This refers to the replacement of a foreign currency with U.S. dollar

A

DOLLARIZATION

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7
Q

This is the risk an investment’s returns could suffer as a result of political changes or instability in a country

A

POLITICAL RISK

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8
Q

In this exchange rate system, if an exchange rate begins to move too much, governments intervene to maintain it within the boundaries

A

FIXED

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9
Q

The value of money is determined by the demand for it, just like the value of goods and services

A

CURRENCY VALUES

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10
Q

This accounts for the possibility of market imperfections such as transportation costs, tariffs, and quotas

A

RELATIVE FORM OF PPP

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11
Q

S1: In interest rate parity theory, the spot rate of one currency with respect to another will change in reaction to the differential in inflation rates between the two countries

S2: In international fisher effect theory, the spot rate of one currency with respect to another will change in accordance with the differential in interest rates between the two countries

A

FALSE; TRUE

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12
Q

This refers to simultaneously buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset

A

ABITRAGE

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13
Q

This is a regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies

A

FLOATING EXCHANGE

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14
Q

In this exchange rate system, the exchange rate system that exists today for some currencies lies somewhere between fixed and freely floating

A

MANAGED FLOAT

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15
Q

S1: IFE theory suggests that exchange rate movements are caused by inflation rate differentials

S2: PPP theory suggests that exchange rate movements are caused by inflation rate differentials

A

FALSE ;TRUE

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16
Q

When the Fed intervenes in the foreign exchange market and simultaneously engages in offsetting transactions in the Treasury securities markets, it is engaging in

A

STERILIZED INTERVENTION

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17
Q

In this exchange rate system, exchange rate values are determined by market forces without intervention by governments

A

FREELY FLOATING

18
Q

This refers to capitalizing on a discrepancy in quoted prices by making a riskless profit

A

ARBITRAGE

19
Q

This refers to the lack of compatibility or similarity between two or more facts

A

DISREPANCY

20
Q

To force the dollar to depreciate, this system is done by exchanging dollars that it holds as reserves for other foreign currencies in the foreign exchange market

A

DIRECT INTERVENTION

21
Q

This is the result of a discrepancy between three foreign currencies that occurs when the currency’s exchange rates do not exactly match up

A

TRIANGULAR ARBITRAGE

22
Q

This refers to course or principle of action adopted or proposed by a government, party, business, or individual

A

POLICIES

23
Q

S1: According to the so-called International Fisher effect, nominal risk-free interest rates contain a real rate of return and anticipated inflation

S2: According to the so-called Purchasing Power parity, nominal risk-free interest rates contain a real rate of return and anticipated inflation

A

TRUE; FALSE

24
Q

S1: In interest rate parity theory, the forward rate of one currency with respect to another will contain a premium that is determined by the differential in interest rates between the two countries

S2: In purchasing power parity theory, the spot rate of one currency with respect to another will change in reaction to the differential in inflation rates between the two countries

A

TRUE; TRUE

25
Q

This establishes the way in which the exchange rate is determined

A

EXCHANGE RATE SYSTEM

26
Q

In this exchange rate system, exchange rates are either held constant or allowed to fluctuate only within very narrow boundaries

A

FIXED

27
Q

This is an over-the-counter (OTC) global marketplace that determines the exchange rate for currencies around the world

A

EXCHANGE MARKET

28
Q

When the Fed intervenes in the foreign exchange market without adjusting for the change in the money supply, it is engaging in

A

NON STERILIZED INTERVENTION

29
Q

S1: In interest rate parity theory, the forward rate of one currency with respect to another will contain a premium that is determined by the differential in interest rates between the two countries

S2: In international fisher effect theory, the spot rate of one currency with respect to another will change in accordance with the differential in interest rates between the two countries

A

TRUE; TRUE

30
Q

This refers to nominal risk-free interest rates contain a real rate of return and anticipated inflation

A

INTERNATIONAL FISHER

31
Q

This is the process of buying a currency at the location where it is priced cheap and immediately selling it at another location where it is priced higher

A

LOCATIONAL ARBITRAGE

32
Q

S1: The absolute form of PPP suggests that prices of the same basket of products in two different countries should be equal when measured in a common currency.

S2: The relative form of PPP acknowledges that because of these market imperfections, prices of the same basket of products in different countries will not necessarily be the same when measured in a common currency

A

TRUE; TRUE

33
Q

S1: Inflation rates and interest rates can have a significant impact on exchange rates and therefore can influence the value of MNCs

S2: One of the most popular and controversial theories in international finance is the purchasing power parity (PPP) theory

A

TRUE; TRUE

34
Q

This is based on the notion that without international barriers, consumers shift their demand to wherever prices are lower

A

ABSOLUTE FORM OF PPP

35
Q

This is based in Frankfurt and is responsible for setting monetary policy for all participating European countries

A

EUROPEAN CENTAL BANK

36
Q

A central bank in the United States that may intervene in the foreign exchange markets to control its currency’s value

A

FEDERAL RESERVE SYSTEM

37
Q

This refers to the attempts to quantify the inflation–exchange rate relationship

A

PURCHASING POWER PARITY

38
Q

A type of exchange rate in which a currency’s value is fixed against either the value of another country’s currency or another measure of value, such as gold.

A

PEGGED EXCHANGE RATE

39
Q

When countries experience substantial net outflows of funds, they commonly intervene by raising interest rates to discourage excessive outflows of funds and therefore limit any downward pressure on the value of their currency. This is what type of intervention?

A

INDIRECT INTERVENTION

40
Q

S1: In interest rate parity theory, the forward rate of one currency with respect to another will contain a premium that is determined by the differential in interest rates between the two countries

S2: In interest rate parity theory, the spot rate of one currency with respect to another will change in reaction to the differential in inflation rates between the two countries

A

TRUE; FALSE

Global Finance and Electronic banking (4 decks)

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