Market Analysis Flashcards
A balance of payments deficit would be narrowed by what?
- Decrease levels of US imports
- Increase sales of US securities to foreign holders
- increase levels of foreign tourists visiting the US
Fewer dollars are being spent abroad and more being spent in the US.
Decreasing levels of US imports
Increase sales of US securities for foreign holders
If the dollar appreciated against foreign currencies.. this results in?
Decreasing trade surplus
Increasing trade deficit
More likely to import mire as foreign goods become cheaper to the US.
Where do foreign currencies trade?
Interbank market
Where do foreign currency option contracts that are securities trade?
Philadelphia stock exchange
Interbank market
Unregulated
Open 24 hr
Responds to central bank intervention
Large commercial banks
Trading in the interbank market will affect?
Foreign currency prices in terms of US dollars
Future trade deficit or surplus figures
Future economic growth
*does not affect future inflation levels
Spot settlement:
Settlement and delivery in 1 or 2 business days
More active 1 day, less active 2 days
Forward contract:
Settlement later than “spot”— usually months later
Foreign currency risks
Political risk
Market risk
Exchange rate risk
As dollars are purchased
The value will rise
If dollars are sold
The value will drop
If dollar falls against foreign currencies:
- US goods are cheaper to foreign counties
- US exports are likely to rise
- foreign imports are likely to fall
What actions are likely to cause the value of the US dollar to rise?
- The fed raises the discount rate
- Foreign investors purchase US securities
Cause the value of the US dollar to decline
- The fed lowers the discount rate
- US trading is running a widening trade deficit with foreign nations
- US investors are making large purchases of foreign securities
Dollar value follows interest rate
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