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22 Cards in this Set
- Front
- Back
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Foreign exchange |
A commodity that consists of currencies issued by countries other than ones own. Set by demand and supply in the marketplace. |
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Exchange rate |
The price of one country's currency in terms of another country's currency. Equilibrium quantity |
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Direct exchange rate/ direct quote |
The price of the foreign currency in terms of the home currency |
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Indirect exchange rate/quote |
The price of the home currency in terms of foreign currency |
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Largest foreign exchange market |
London, then new York, Singapore, Tokyo. |
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Primary transaction currency |
The dollar and it's dominance stemming from Bretton woods system |
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Commercial customers |
Engage in foreign exchange as part of their normal commercial activities. |
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Speculators |
Assume exchange rate risks by acquiring positions in a currency. Predict change for profit. |
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Arbitrageurs |
Attempt to exploit small differences in the price of currency between markets |
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Convertible currencies |
Currencies that are freely tradable aka hard currencies |
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Hard currencies |
Swedish krona Euro British pound Canadian dollar Australian dollar Swiss franc Japanese Yen US dollar |
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In convertible currencies |
Soft currencies many developing countries currencies. |
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Spot market |
Foreign exchange transactions that are to be consumed made it immediately (two days) |
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Forward market |
Foreign exchange transactions that are to occur sometime in the future |
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Swap transaction |
Transaction in which the same currency is bought and sold simultaneously but delivery is made at two points in time |
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Currency future |
For a standard amount on a standard delivery date |
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Currency option |
Allows but not require a firm to buy or sell a specified amount of foreign currency at a specified price on a specified date |
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Put option |
Grants the right to sell the foreign currency |
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Call option |
Grants the right to by the foreign currency in question |
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Arbitrage |
The riskiest purchase of a product in one market for immediate sale in secondmarket to profit from a price discrepancy |
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Theory of purchasing power parity |
the prices of tradable goods when expressed in a common currency will tend to equalize across countries as a result of exchange rate changes |
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Cross rate |
An exchange rate between two currencies calculated through the use of a third currency |
