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11 Cards in this Set

  • Front
  • Back

Exchange rates are expressed as?

Direct quote: The number of domestic currency units needed to buy one unit of a foreign currency

Indirect quote: The number of foreign currency units needed to buy one unit of the domestic currency

Currency may appreciate or depreciate based on exchange rates.

A currency A is said to have strengthened (appreciated) relative to another currency B

if you now need to give less units of currency A to purchase a unit of currency B.

Currency B would therefore weaken (depreciate) relative to currency A.

The cross-exchange rate is the implied exchange rate between two currencies if each of these currencies is quoted in a third currency.

how are cross-exchange rate?

Implied cross rates can be useful when we want to compare two currencies which are not actively traded against each other.

The spot rate is ?

the exchange price for transactions for immediate delivery.

The forward rate applies to a deal which is?

Agreed upon now but where the actual exchange of currency is due to take place at some future date.

The difference between the buying and selling prices is called the?

'bid-ask spread'.

The Fisher effect says ?

That interest rates are affected by the rate of inflation. Hence depositors in countries with very high rates of inflation are almost always offered correspondingly high rates on their bank balances.

Purchasing power parity suggests ?

that goods should cost the same everywhere. It operates more effectively for global markets, than for individual consumers, which ensure that many corporate customers pay the same price for basic commodities.

Interest rate parity theory is ?

a method of predicting exchange rates based on the hypothesis that the difference between the interest rates in two countries should offset the difference between the spot rates and the forward foreign exchange rates over the same period.

Expectations theory states that ?

the movement predicted by the forward markets has to reflect the market's expectations of changes in the exchange rate.

The international Fisher effect states that ?

The effects of the other relationships will create a relationship between interest rates offered in different countries and the relative strengths of their respective currencies