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25 Cards in this Set
- Front
- Back
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foreign exchange market
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a market for converting the currency of one country into that of another country
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exchange rate
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the rate at which one currency is converted into another
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foreign exchange risk
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the risk that changes in exchange rates will hurt the profitability of a business deal
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currency speculation
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involves short-term movement of funds from one currency to another in hopes of profiting from shifts in exchange rates
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spot exchange rate
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the exchange rate at which a foreign exchange dealer will convert one currency into another that particular day
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hedge fund
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investment fund that not only buys financial assets (stocks, bonds, currencies) but also sells them short
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short selling
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occurs when an investor places a speculative bet that the value of a financial asset will decline, and profits from that decline
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forward exchange
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when two parties agree to exchange currency and execute a deal at some specific date in the future
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forward exchange rate
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the exchange rates governing forward exchange transactions
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currency swap
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simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
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arbitrage
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the purchase of securities in one market for immediate resale in another to profit from a price discrepancy
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law of one price
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in competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in the same currency
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efficient market
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a market where prices reflect all available information
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relatively efficient market
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one in which few impediments to international trade and investment exist
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Fisher effect
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nominal interest rates in each country equal the required real rate of interest and the expected rate of inflation over the time period for which the funds are to be lent
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International Fisher Effect
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for any two countries, the spot exchange rate should change in an equal amount but in the opposite direction to the difference in nominal interest rates between countries
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efficient market
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a market where prices reflect all available information
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inefficient market
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one in which prices do not reflect all available info
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fundamental analysis
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draws on economic theory to construct sophisticated econometric models for predicting exchange rate movements
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technical analysis
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uses price and volume data to determine past trends, which are expected to continue
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freely convertible currency
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a country's currency is freely convertible when the government of that country allows both residents and nonresidents to purchase unlimited amounts of foreign currency with the domestic currency
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externally convertible currency
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nonresidents can convert their holdings of domestic currency into foreign currency, but the ability of residents to convert the currency is limited in some way
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nonconvertible currency
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a currency is not convertible when both residents and nonresidents are prohibited from converting their holdings of that currency into another currency
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capital flight
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residents convert domestic currency into a foreign currency
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countertrade
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a trade of goods and services for other goods and services
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