Topics mentioned on announcements Flashcards
How do tariffs affect the exchange rate?
Tariffs can strengthen the domestic currency by reducing imports, but they may also cause retaliation, reducing global trade.
How do tariffs impact the economy?
They increase prices for consumers, protect domestic industries, and can lead to trade wars.
Why are services and wages cheaper in poorer countries?
Labor productivity is lower, and the cost of living is generally cheaper, leading to lower wages and service costs.
What are the five key factors that affect exchange rates?
Interest rates, inflation, income, gov controls, expectations
A country cannot simultaneously have free capital movement, a fixed exchange rate, and an independent monetary policy.
A country cannot simultaneously have free capital movement, a fixed exchange rate, and an independent monetary policy.
How can firms hedge exchange rate risks?
Futures contracts: Standardized contracts to buy/sell at a set price in the future.
Forward contracts: Custom agreements to buy/sell at a set price in the future.
Options: Rights to buy/sell at a specific rate.
Matching assets and liabilities: Offsetting currency exposure in revenues and costs.
What is seigniorage?
The profit a government earns from issuing currency, particularly when foreign countries hold USD as reserves.
How do multinational companies avoid taxes?
Shifting profits to low-tax countries.
Using transfer pricing.
Exploiting loopholes in tax treaties.
What is the 40% rule in forecasting?
Company’s combined revenue growth rate and profit margin should equal or exceed 40%.
What does a rising line and a falling on a currency graph indicate?
Rising line: currency is appreciating against another currency.
Faling line: depreciating
How does currency appreciation affect local consumers?
It benefits consumers by making imported goods cheaper.
How does currency appreciation affect local producers?
It hurts producers by making exports more expensive and less competitive.
How does currency appreciation affect foreign competitors?
It benefits foreign competitors as their goods become cheaper relative to local goods.
