Ch. 6

Front 1

International monetary system

Back 1

inst. and mechanism to foster international trade, manage the flow of finanacial capital, and determine currency exchange rates

Front 2

Physical finance centers

Back 2

What is no longer necessary to carry out international transactions?

Front 3

Gold standard

Back 3

Prior to 1914 there was a ______ standard

Front 4

Bretton Woods fixed exchange rate system (up to 1972)

Back 4

international monetary system in which the U.S. dollar was valued in gold & other exchange rates were pegged to the dollar

Front 5

Flexible exchange rate system (Present)

Back 5

Gold was abandoned as a reserve asset & major currencies were allowed to "float" against one another with currency exchange rates being determined by supply and demand

Front 6

European monetary union (EMU)

Back 6

organization of european countries that agreed to have a common overall monetary policy and the euro as their common currency

Front 7

Maastricht treaty

Back 7

In late 1991, EC members signed this treaty which provided for economic convergence, the fixing of exchange rates, and the adoption of the euro

Front 8

27

Back 8

How many countries are in the EU?

Front 9

Currency exchange rate

Back 9

value of one currency relative to another currency

Front 10

Direct quotation method

Back 10

indicates the amount of a home country's currency needed to purchase one unit of a foreign currency

Front 11

Indirect quotation method

Back 11

indicates the amount of a foreign currency needed to purchase one unit of the home country's currency

Front 12

Currency exchange markets

Back 12

electronic markets where banks and institutional traders buy and sell currencies on behalf of businesses, other clients, and themselves

Front 13

Foreign exchange markets

Back 13

same as currency exchange markets

Front 14

Factors that affect currency exchange rates

Back 14

supply and demand, inflation and interest rates, and other factors

Front 15

Purchasing power parity (PPP)

Back 15

currency of country with relatively higher inflation rate will depreciate relative to currency of country with relatively lower inflation rate

Front 16

Interest rate parity (IRP)

Back 16

currency of a country with relatively higher interest rate will depreciate relative to currency of country with relatively lower interest rate

Front 17

Political risk

Back 17

risk associated with the possibility that a national government might confiscate or expropriate assets held by foreigners

Front 18

Economic risk

Back 18

risk associated with possible slow or negative economic growth and/or the variability of economic growth

Front 19

Arbitrage

Back 19

buying commodities, securities, or bills of exchange in one market and immediately selling them in another market to make a profit from price differences in the two markets

Front 20

Steeply declining

Back 20

Currently the exchange rate of the U.S. dollar is...

Front 21

Managing foreign exchange risk

Back 21

firms with foreign sales must be concerned with stability of governments and changing currencies values of other countries

Front 22

Foreign Corrupt Practices Act (FCPA)

Back 22

prohibits firms from bribing foreign officials

Front 23

Draft (Bill of exchange)

Back 23

an unconditional order for the payment of money from one person to another

Front 24

Sight draft

Back 24

draft requiring immediate payment

Front 25

Time draft

Back 25

draft that is payable at a specified future date

Front 26

Order bill of lading

Back 26

document given by a transportation company that lists goods to be transported and terms of the shipping agreement

Front 27

Documentary draft

Back 27

draft that is accompanied by an order bill of lading and other documents

Front 28

Commercial letter of credit

Back 28

statement by a bank guaranteeing acceptance and payment of a draft up to a stated amount

Front 29

Trust receipt

Back 29

Instruments through which a bank retains title to goods until paid for

Front 30

Banker's acceptance

Back 30

promise of future payment issued by a firm and guaranteed by a bank

Front 31

Export-Import bank

Back 31

bank established to aid in financing and facilitating trade between the U.S. and other countries

Front 32

Traveler's letter of credit

Back 32

issued by a bank to banks in other countries authorizing them to cash checks or purchase drafts presented by the bearer

Front 33

Balance of payments

Back 33

summary of transactions betwen one country and the world

Front 34

Balance and trade

Back 34

net value of a country's exports of goods and services versus imports

Front 35

Merchandise trade balance

Back 35

net difference between a country's import and export goods

Front 36

Current account balance

Back 36

flow of income into and out of the U.S. during a specified time period

Front 37

Capital account balance

Back 37

foreign government and private investments in the U.S. netted against similar U.S. investment in foreign countries