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25 Cards in this Set
- Front
- Back
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What is the spot market? |
Commercial foreign exchange transactions for immediate exchange, done electronically. |
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What is the spot rate? |
the exchange rate at which one currency is traded for another in the spot market. |
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What is the Bid/Ask Spread equation? |
Ask rate - Bid Rate ---------------------------- Ask Rate |
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What is a direct quotation? |
Quotations that represent the value of a foreign currency in dollars. |
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What is a indirect quotation? |
Quotations that represent the number of units of a foreign currency per dollar. |
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Cross Exchange Rates |
Rates between currencies not the $ |
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What is a forward contract? |
obligation that specifies currency to be exchanged, the rate and the date. |
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Forward Rate? |
Exchange rate specified in the forward contract |
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Forward Market? |
The market in which the forward contracts are traded. |
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Currency future contract? |
specifies a standard volume of a particular currency to be exchanged on a specified settlement date. |
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Future Rate? |
the exchange rate at which one can purchase or sell a specified currency on the settlement date. |
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Future Spot Rate? |
spot rate that exists at a future point in time. |
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Difference between forward and future? |
Forward: in person transaction Future: electronic transaction |
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Currency Call Option |
provides the right to buy a specific currency at a specific price (strike price).
used to hedge future payables. |
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Currency Put Option |
provides the right to sell a specific currency at a specified price within a specific period of time.
use to hedge future receivables. |
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What are the International Markets? |
Foreign Exchange Market International Money Market International Credit Market International Bond Market International Stock Market |
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IMM: Demand for short-term funds |
1. pay for imports 2. interest rate is lower 3. currency that will depreciate (repay loan at more favorable rate) |
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IMM: Supply of short-term funds |
1. interest rates 2. investing in a currency that will appreciate |
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What does the international credit market consist of? |
1. Medium-term obligations 2. Medium-term funds 3. Eurocredit Loans (1 yr) 4. Eurocredit Market 5. Floating Rate loans 6. LIBOR |
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What is LIBOR? |
London Interbank Offered Rate: rate often charged for loans between banks. |
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International Bond Market: Why? |
1. Attract a stronger demand 2. Finance a specific foreign project in a particular currency. 3. financing in a foreign currency with a lower interest rate. |
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International Bond Market: How? |
Commercial Banks Mutual Funds Insurance Companies Pension Funds |
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International Stock Market: What? |
-Equity Financing -Stock Offering -Institutional Investors |
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International Stock Market: Investing in foreign stock markets, why? |
1) Economic Conditions will be favorable. 2) Currencies are expected to strengthen 3) Diversifying portfolio. |
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How do you invest internationally? |
1) Direct purchases of foreign stocks 2) Investment in MNC stocks 3) American Depository Receipts (ADR) 4) Exchanged Traded Funds (ETFs) 5) International Mutual Funds (IMFs) |
