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22 Cards in this Set
- Front
- Back
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hard currencies |
leading world currencies of developed industrialized countries, including the U.S. dollar, European euro, Japanese yen, and British pound sterling |
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direct quotes |
prices of a foreign currency in dollars, or the number of dollars per one unit of foreign currency) |
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premium |
in the forward market, the selling of a currency at a spot rate that is more than the forward rate |
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dollarization |
the practice of using the dollar or some other foreign currency together with, or instead of, a domestic currency in a country |
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arbitrage |
buying goods in a lower priced market and selling them in a higher priced market to make profits |
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law of one price |
principle stating that identical goods should sell for the same price in different countries according to local currencies |
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spot market |
exchange that trades currencies on a real-time basis for immediate delivery |
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discount |
in the forward market, the selling of a currency at a spot rate that is less than the forward rate |
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trade deficit |
when merchandise imports exceed merchandise exports for a country |
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interest rate parity (IRP) |
theory stating that interest rates on bonds in different countries should be the same, as investors would buy and sell these bonds to make arbitrage profits until this condition holds |
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income balance |
the net of investment income from abroad and investment payments to foreigners |
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risk premium |
the added return required by investors for risk associated with a security or asset |
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uncovered interest rate parity |
principle implying that expected future spot exchange rates and spot exchange rates set interest rates on bonds in different countries equal to one another |
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forward rate |
the price at an earlier time of a currency in terms of another currency established for future delivery in the forward market |
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bid-ask spread |
the difference between bid and ask prices of a currency; the transaction fee earned by the bank |
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soft currencies |
emerging market countries’ currencies that are less stable in value than hard currencies and are sometimes pegged to hard currency values |
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balance of payments (BOP) |
a statement of account that shows all transactions between the residents of one country and the rest of the world for a given period of time |
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covered interest rate parity |
principle implying that forward exchange rates and spot exchange rates set interest rates on bonds in different countries equal to one another |
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services balance |
the net of exports of services and imports of services |
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exchange rate |
the price at which one currency can be converted to another currency |
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Big Mac Index |
calculation using the cost of a McDonald’s restaurant sandwich to assess the relative values of currencies |
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foreign direct investment (FDI) |
encompasses purchases of fixed assets (such as factories and equipment) abroad used in the manufacture and sales of goods and services |
