Chapter 1

Question 1

Government fix their currencies value usually in terms of another currency such as the us dollar

Answer 1

Fixed- rate system

Question 2

These are businesses that operates in many different countries

Answer 2

Multinational corporations

Question 3

The price of one currency in terms of another currency

Answer 3

Exchange rate

Question 4

an exchange rate system in which a currencies value is allowed to fluctuate in response to market forces

Answer 4

Floating exchange rate

Question 5

An exchange rate system in which the price of one currency is fixed relative to another currency by government authorities

Answer 5

Fixed exchange rate

Question 6

A hybrid currency system in which a government loosely fixes the value of the national currency relative to one or more other currencies

Answer 6

Managed floating rate system

Question 7

The six major currencies in international finance

Answer 7

British pound sterling
swiss franc
japanese yen
canadian dollar
us dollar
euro

Question 8

An exchange rate system in which each unit of the domestic currency is backed by a unit of some foreign currency

Answer 8

Currency board arrangement

Question 9

An exchange rate quoted in terms of units of domestic currency per unit of foreign currency

Answer 9

Direct quote

Question 10

This will happen to a currency when it buys less of an other currency than it did previously

Answer 10

Depreciate

Question 11

An exchange rate quoted in terms of foreign currency per unit of domestic currency

Answer 11

Indirect quote

Question 12

This will happen to the currency when it buys more of an other currency than it did previously

Answer 12

Appreciate

Question 13

This is the exchange rate that applies to immediate currency transactions

Answer 13

Spot exchange rate or current exchange rate

Question 14

The exchange rate quoted for a transaction that will occur on a future date

Answer 14

Forward exchange rate

Question 15

When one currency buys more of another on the forward market than it buys on the spot market

Answer 15

Forward premium

Question 16

When one currency buys less of another on the forward market than it buys on the spot market

Answer 16

Forward discount

Question 17

It gives traders information about more than just the price of exchanging currencies at a different points in time

Answer 17

Forward discount or premium

Question 18

This is tightly linked to differences in interest rates on short-term low risk bonds across countries

Answer 18

Forward premium

Question 19

An exchange rate between two currencies calculated by taking the ratio of the exchange rate of each currency expressed in terms of a third currency

Answer 19

Cross exchange rate

Question 20

A trading strategy in which trades by a currency in a country where the value of the currency is too low and immediately sell the currency in another country where the currency value is too high

Answer 20

Triangular arbitrage

Question 21

This is not actually a physical exchange but a global telecommunications market

Answer 21

Foreign exchange market

Question 22

This is the world’s largest financial market

Answer 22

Foreign exchange market

Question 23

The five major dealing centers

Answer 23

Singapore bahrain continental europe london north america

Question 24

Trading is more constrained and regulated and frequently involves a national government as counterparty on one side of the trade

Answer 24

Fix rate currency

Question 25

What are the six market participants

Answer 25

Exporters and importers investors hedgers speculators dealers government

Question 26

They trade foreign currency when they seek to buy and sell financial assets in foreign countries

Answer 26

Investors

Question 27

Trading an asset for the sole purpose of reducing or eliminating the risk associated with some other asset

Answer 27

Hedging

Question 28

They influenced currency values when they take a positions to offset the risk of the existing exposures to certain currencies

Answer 28

Hedgers

Question 29

They sell a currency if they're expected to depreciate and they buy if they expect it to appreciate

Answer 29

speculators

Question 30

They help make the foreign currency market more liquid and more efficient

Answer 30

speculators

Question 31

They play a crucial role in the foreign exchange business

Answer 31

Dealers

Question 32

It is the price at which a currency dealer is willing to sell foreign currency

Answer 32

Ask price

Question 33

This is the price at which the dealer is willing to buy currency

Answer 33

Bid price

Question 34

This intervene in financial markets to put upward or downward pressure and currencies as circumstances dictate

Answer 34

Governments

Question 35

The parity conditions in international finance

Answer 35

Forward spot parity purchasing power parity interest rate parity real interest rate parity or the fisher effect

Question 36

When markets are in equilibrium this should be linked across countries

Answer 36

Spot and forward exchange rates interest rates inflation rates

Question 37

An equilibrium relationship that predicts that the current forward rate will be an unbiased predictor of the spot rate on a future date

Answer 37

Forward spot parity

Question 38

An equilibrium relationship that predicts that currency movements are tied to differences and inflation rates across countries

Answer 38

Purchasing power parity

Question 39

A theory that says that the identical good trading in different markets must sell at the same price

Answer 39

Law of one price

Question 40

An equilibrium relationship that predicts that differences in risk-free interest rates in two countries must be tied to differences in currency values on the spot and forward markets

Answer 40

Interest rate parity

Question 41

Trading strategy designed to exploit deviations from interest rate parity to earn an arbitrage profit

Answer 41

Covered interest arbitrage

Question 42

An equilibrium relationship that predicts that the real interest rate will be the same in every country

Answer 42

Real interest rate parity or the fisher effect

Question 43

What are the four financial and political risk

Answer 43

Transaction risks translation and economic risk political risk european monetary union and the rise of regional trading blocs

Question 44

This exchange rate risk cannot be eliminated but it can be hedge using financial contracts

Answer 44

Transactions risk

Question 45

The risk that movements and exchange rate will adversely affect the value of a particular transaction

Answer 45

Transactions exposure

Question 46

The race that exchange rate movements will adversely impact reported financial results on a firm's financial statements

Answer 46

Translation exposure or accounting exposure

Question 47

The risk that a firm's value will fluctuate due to exchange rate movements

Answer 47

Economic exposure

Question 48

These are yen denominated bonds issued by non-japanese corporations

Answer 48

Samurai bond

Question 49

The risk that a government will take an action that negatively affects the values of firms operating in that country

Answer 49

Political risk

Question 50

The two basic dimensions of political risk

Answer 50

Macro political risk and micro political risk

Question 51

This means that all foreign firms in the country will be subject to political risk because of political change revolution or the adoption of new policies be a host government

Answer 51

Macro political risk

Question 52

This refers to a foreign government targeting punitive action against an individual firm a specific industry or company's from a particular foreign country

Answer 52

Micro political risk

Question 53

The currency used throughout the countries that make up by the european union

Answer 53

Euro

Question 54

An agreement between many european countries to integrate their monetary systems including using a single currency

Answer 54

Monetary union

Question 55

A trade treaty that extends free trade principles to broad areas of economic activity in many countries

Answer 55

General agreement on tariffs and trade or GATT

Question 56

An organization established by GATT to police world trading practices and to settle disputes between GATT member countries

Answer 56

World trade organization

Question 57

The two long term investment decisions

Answer 57

Capital budgeting cost of capital