Unit 7

Question 1

exchange rate

Answer 1

the price of one country’s currency expressed in terms of another country’s currency

Question 2

TYPES OF QUOTATION

Answer 2

Direct Quotation (1 unit of foreign currency that will buy X amount of local currency)

Indirect Quotation ( the amount of the foreign
currency per R1 of local currency)

Question 3

Cross-rate

Answer 3

implied exchange rate between two currencies, when both currencies are quoted in terms of a third one.

Question 4

Triangular Arbitrage

Answer 4

Inconsistencies in exchange rate quotations when applying cross rates

Question 5

Types of Transaction

Answer 5

Spot Trade
Spot Exchange Rate
Forward Transaction
Forward Rate

Question 6

Purchasing power parity

Answer 6

The idea that the exchange rate adjusts to keep purchasing power constant among currencies

Absolute and Relative

Question 7

Exchange Rate Risk

Answer 7

Short-Run Exposure
Long-Run Exposure
Translation Exposure

Question 8

Political Risk

Answer 8

Changes in value that arise as a consequence of political actions