Exchange Rates Cma Exam

Front 1

How are equilibrium exchange rates determined?

Back 1

By the supply and demand for the currencys

Front 2

Managed float

Back 2

When prices fluctuate alot governments or central banks intervene to maintain stable exchange rates.

Front 3

An exchange rate set too high

Back 3

creates a deficit in the us balance of payments

Front 4

An exchange rate set too low

Back 4

creates a surplus in the us balance of payments

Front 5

interest rate parity theorem

Back 5

Current forward and spot exchange rates equals equals the ratio of one plus the current nominal foreign rate to one plus the current domestic rate.

Front 6

Transaction Gain (loss)

Back 6

results from a change in exchange rates between functional currency and currency in which transaction is denominated.


Change 1. Actual functional currency cash flows on settlement
2. expected functional currency cash flows on unsettled transactions

Front 7

Cross rate

Back 7

exchange rate between 2 currencies not including the dollar.

Front 8

Spot rate

Back 8

exchange rate paid for immediate delivery

Front 9

Forward exchange rate

Back 9

future price of the currency

Front 10

If the forward rate in foreign currency units is greater than the spot rate, then the dollar is selling

Back 10

at a premium in the forward market

Front 11

If the spot rate in the foreign currency units per dollar is greater than the forward rate, the dollar is selling

Back 11

a discount in the forward market.

Front 12

if the inflation rate in the U.K. is 12% and the inflation rate in the U.S. is 10% then the

Back 12

Dollar should appreciate by 2%

Front 13

Foreign currency swap

Back 13

Two-Party agreement to exchange one type of currency for another at a specific date in the future at a specific exchange rate.

Front 14

Trigger Pricing

Back 14

Foreign funds are supplied at an indexed price but with an option to convert to a futures based fixed price when a specified basis differential exists between the two prices.

Front 15

Speculative forward contract

Back 15

does not hedge any exposure to foreign currency fluctuations

Front 16

Swaps

Back 16

contracts to hedge risk by exchanging cash flows

Front 17

Plain vanilla swap

Back 17

Exchange of interest rates without any change in the initial debt arrangement

Front 18

Steps to valuation of swaps

Back 18

Identifying the cash flows over time
Constructing swap curve
Constructing zero-coupon curve
Determine PV of the cash flows using zero-coupon rates

Front 19

Swap spresd

Back 19

Market-determined additional yield that compensates counter-parties who received fixed payments in a swap for the credit risk involved in the swap

Front 20

currency swap

Back 20

exchange of an obligation to pay out cash flows dnominated in on currency for an obligation to pay in another

Front 21

Swaption

Back 21

option on a swap, usually on an interest rate swap, that provides the holder with the right to enter into a swap at a specified rate in the future at specified terms.