Moffet ch 3 Flashcards
What is ‘Selling Short’?
A speculation technique where a speculator sells an asset to another party for delivery on a future date. The speculator does not own the asset and expects the price to fall.
Two institutions where established at Bretton Woods, which?
The International Bank for Reconstruction and Development (The World Bank)
&
The International Monetary Fund (IMF)
What is the role of The International Bank for Reconstruction and Development (The World Bank)
Originally to help fund post-war reconstruction and since to support general economic development.
What is the role of The International Monetary Fund (IMF)?
To aid countries with BoP and exchange rate problems.
What are eurocurrencies?
Eurocurrencies are domestic currencies of one country on deposit in a second country.
What TWO purposes does the eurocurrency markets serve?
- Eurocurrency deposits are an efficient and convenient money market device for holding excess corporate liquidity
- The Eurocurrency market is a major source of short-term bank loans to finance corporate working capital needs, including financing of imports and exports.
What is LIBOR?
London Interbank Offered Rate
the reference rate of interest for the Eurocurrency market
How can the interest rate spread for Eurocurrency be described?
Very narrow, often less than 1% difference between loan and deposit rates.
Describe the ‘Impossible Trinity’
Three attributes of the ideal currency, and impossible to get all three:
- Exchange rate stability
- Full financial integration
- Monetary independence
What is a Currency Board?
A Currency Board exist when a country’s central bank commits to its monetary base entirely with foreign reservers at all times.
This commitment means that a unit of domestic currency cannot be introduced without an additional unit of foreign exchange reserves being obtained first.
