6567376
Description
Flashcards by Kyle Olson, updated more than 1 year ago
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Created by Kyle Olson
over 7 years ago
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| Question | Answer |
| Exchange Rates | Specifies the rate at which one currency can be exchanged for another |
| Gold Standard | 1876-1913, each currency was transferable to gold at a specified rate |
| Fixed rate agreements | Bretton Woods Agreement 1944-1971 Smithsonian Agreement 1971-1973 |
| Floating rate system | Currencies allowed to fluctuate with market forces |
| Over the Counter (OTC) Market | Telecommunications network where companies normally exchange currencies |
| Foreign Exchange (FX) Dealers | Serve as intermediaries in FX market |
| Spot Market | Immediate exchange |
| Interbank Market | Trading between banks |
| FX Transactions | USD is commonly accepted medium, traded during business hours in a given location (can trade at all times) |
| Bid/Ask | Bid (buy) Ask (sell) |
| Bid/Ask Spread | =(Ask rate - Bid rate) / Ask rate |
| Order costs | clearing costs and cost of recording transactions |
| Inventory costs | includes opportunity cost of inventory |
| Competition | More intense competition means smaller spreads |
| Volume | Currencies with larger trading volume are more liquid and have bigger spreads |
| Currency risk | Economic or political conditions that can cause supply and/or demand to change abruptly |
| Direct Quote | Number of USD per foreign currency |
| Indirect Quote | Number of foreign currency per USD |
| Appreciating vs. Depreciating | When the direct quote of a currency is increasing that currency is appreciating. When the indirect quote is increasing that currency is depreciating |
| Cross Exchange Rate | Reflects the amount of one foreign currency per unit of another foreign currency |
| Forward Contracts | Agreements between FX dealer and MNC specifying the currencies exchanged, FX rate and time at which the exchange will take place |
| Futures Contract | Standardized contracts traded on an exchange. Specifies currency, futures rate, volume and settlement date. The futures spot rate is uncertain at this point. |
| Options | Call option (Buyer has the right but not obligation to buy at a specified price) Put option (Buyer has the right but not obligation to sell at a specified price) |
| Money Market Securities | Short term debt, pretty liquid and mostly risk free |
| Syndicated Loans | If a single bank is unwilling or unable to provide the funds for a loan a syndicate of banks form to underwrite the loan |
| Basel I Basel II Basel III | -Banks must maintain capital of at least 4% of assets -Accounts for differences in collateral, improves risk control, requires banks to provide more information to shareholders -Called for new methods of estimating risk-weighted assets |
| Impact of 2008 | Triggered by default of sub-prime loans led to recession and financial institutions became less likely to lend money |
| Foreign Bonds | Bonds issued by a company foreign to the country the bond is issued in. Ex: Yen denominated bond issued in Japan by a US MNC |
| Eurobond | Bond issued denominated in a currency other than the currency of the country the bond is issued in. Ex: US MNC issues a USD denominated bond in Japan |
| Interest Rate Risk | Potential for value to decline due to rising long term interest rates |
| Exchange Rate Risk | Potential for value to decline due to the denominated currency depreciating against the home currency |
| Liquidity Risk | Potential for value to decline due to there not being an active market for that bond |
| Credit Risk | Potential for default |
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