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Flashcards in Fin 3718 Final Deck (106):
1

Theory of Comparative Advantage

-everyone gains if each nation specialized in the production of those goods that it produces relatively most efficiently and imports those goods that other countries produce relatively most efficiently
-supports free trade

2

MNE

-multinational enterprise
-a firm that has operating subsidiaries, branches, or affiliates located in foreign countries

3

Globalization

-interaction taking place between all kinds of entities all over the world
-financial transactions, government transactions, commerce

4

Bretton Woods

-an agreement negotiated at a 1944 international conference that was in effect from 1954-1971 that established the IMF
-$35/oz of gold

5

Currency Exchange

-exchanging one currency for another

6

Currency Exchange Notation __/__

-base currency/price currency
-how many of the right needs to make 1 of the left

7

Fixed Currencies

-foreign exchange rates tied to the currency of a major country, gold, or a basket of currencies

8

Floating Currencies

-exchange rates are determined by demand and supply in an open market that is presumably free of government interference

9

IMF

-international monetary fund
-created after WWII to supplement countries in time of economic catastrophe by promoting global monetary and exchange stability
-core goal is to economically strengthen its member countries

10

DXY

-US dollar index
-measure of the value of US dollar relative to foreign currencies

11

LIBOR

-london inter-bank offered rate
-a benchmark rate that some of the world's leading banks charge each other for short-term loans
-serves as the first step to calculating interest rates on various loans throughout the world

12

FOREX (5 broad participants)

1.) banks and non-bank exchange dealers
2.) individuals and firms consulting commercial and investment transactions
3.) speculators and arbitragers
4.) central banks and treasuries
5.) foreign exchange brokers

13

BIS

-bank for international settlements
-a bank in basel, switzerland, that functions as a bank for european central banks

14

Balance of Payments

-a financial statement summarizing the flow of goods, services, and investment funds between residents of a given country and residents of the rest of the world

15

Balance of Payments Main Accounts

-current account
-capital account
-financial account
-foreign exchange currency account

16

Current Account

-keeps track of the transactions in the past year between a country and all other foreign countries

17

Capital Account

-account of all investments made between countries

18

Bid and Ask: Bid

-the price that a dealer is willing to pay to purchase foreign exchange or a security

19

Bid and Ask: Ask

-the price at which a dealer is willing to sell foreign exchange, securities, or commodities
-offer price

20

Bid and Ask

-hard pegs
-soft pegs
-crawling pegs

21

Hard Pegs

-can actually use the other country's currency or can fix the exchange rate

22

Soft Pegs

-fix the currency to another but allow the exchange rate to fluctuate within 1%

23

Crawling Pegs

-it can flux within 2%

24

Multinational or International Trade

-trade between 2+ nations

25

Bill of Lading

-a legal document between the shipper of goods and the carrier detailing the type, quantity, and destination of the goods being carried

26

Bankers Acceptance

-a short-term debt instrument issued by a company that is guaranteed by a commercial bank
-specifies the amount of money, date, and the person to whom the payment is due
-usually within 90 days

27

Letter of Credit

-given by the buyer to the seller before the buyer receives the product to ensure payment
-bank promises to pay

28

Tariffs

-a duty or tax on imports that can be levied as a % of cost or as a specific amount per unit of import

29

Spot Transactions

-contracts that are currently happening today
-value date = date of settlement

30

Swap Transactions

-the simultaneous purchase and sale of a given amount of foreign exchange for 2 different value dates
-include interest rate swaps, currency swaps, and credit swaps

31

Forward Transactions

-contracts that are made for future deliveries
-an agreed-upon foreign exchange transaction to be settled at a specified future date, often 1-3 months after the transaction date

32

Commodities

-agricultural
-minerals
-financial

33

Agricultural

-cotton
-corn
-wheat
-orange juice

34

Minerals

-oil
-copper
-silver
-platinum

35

Financial

-gold and precious metals
-currency
-bonds and other financial assets

36

Arbitrage

-a trading strategy based on the purchase of a commodity, including foreign exchange, in 1 market at 1 price while simultaneously selling it in another market at a more advantageous price, in order to obtain a risk-free profit on the price differential

37

Louisiana Oil Production report from 1975 compared to 2017

-it has been going down for the past few decades

38

Emerging Countries

-BRIC
-brazil
-russia
-india
-china

39

Countries that are in trouble

-PIG(S)
-portugal
-ireland
-greece
-spain (sometimes)

40

Currency Market: Worldwide 24/7, Continuous Link System (CLS)

-system that eliminated losses if either party of a foreign exchange transaction is unable to settle with another party

41

Up-Stream

-exploration and production

42

Mid-Stream

-transportation
-pipeline, rail, barge, oil tanker, truck

43

Downstream

-final product
-refining and marketing

44

5 Major US Shale Formations

-barnet shale: texas
-appalachian basin shale/utica: NY, PA, OH
-haynesville-bossier: TX, LA
-eagle ford: TX
-bakken: montana, nd
-antirm

45

Top 5 Countries with Largest Proven Reserves (Oil 101)

-venezuela
-saudi arabia
-canada
-iran
-iraq

46

Proven Reserves

-generally estimates with a probability greater than 90% under present technical and economic conditions

47

Estimated Reserves

-probable reserves (50%-90%) and possible (10%-50%)
-saudi arabia
-iran
-iraq

48

DOE

-department of energy

49

EIA (Energy Information Administration)

-a principal agency of the US federal statistical system responsible for collecting, analyzing, and disseminating energy information to promote sound policymaking, efficient markets, and public understanding of energy and its interaction with the economy and the environment

50

EIA Top 5 Countries

-united states
-saudi arabia
-russia
-canada
-iran
-iraq

51

EPA

-environmental protection agency

52

Top 3 Largest Refining nations ?

-united states
-saudi arabi
-russia

53

Top 3 Countries with the Largest Refineries

-india
-venezuela
-south korea

54

Transaction Exposure

-the potential for a change in the value of outstanding financial obligation entered into prior to a change in exchange rates, but not due to be settled until after the exchange rates change

55

Translation Exposure

-the potential for an accounting-derived change in owners equity resulting from exchange rate changes and the need to restate financial statements of foreign subsidiaries in the single currency of the parent corporation

56

Special Drawing Rights (SDR)

-an international reserve asset, defined by the IMF as the value of a weighted basket of 5 currencies
-issued by IMF for countries who have no sound currency
-fiat currency

57

Maastricht Treaty 1991

-treaty among the 12 EU countries that specified a plan and timetable for the introduction of a single European currency; the euro

58

ECB

-european central bank
-conducts monetary policy of the european monetary union
-goal is to safeguard the stability of the euro and minimize inflation

59

5 Key Central Banks

-federal reserves
-european central bank
-people's bank of china
-bank of japan
-bank of england

60

Functions of the Foreign Exchange Market

-transfer purchasing power between countries
-obtains/provides credit for international trade transactions
-minimizes exposure to the risks of exchange rates

61

*Chinese Renminbi (RMB)*

-chinese currency

62

Balance of Trade

-an entry in the balance of payments measuring the difference between the monetary value of merchandise exports and merchandise imports

63

Oil by Distillates

-heavy
-light
-sweet
-sour

64

Heavy

-highly viscous
-cheaper than light because of production problems

65

Light

-low viscosity
-higher price because it's easier to refine

66

Sweet

-low amount of sulfur
-elevate yields of high-value products, including gasoline, diesel fuel, heating oil, and jet fuel

67

Sour

-high amount of sulfur
-processed into heavy oil like diesel and fuel oil to decrease processing expenses

68

Proven Reserves

-Venezuela
-Saudi Arabia
-Canada
-Iran
-Iraq
-Kuwait
-Russia
-United Arab Emirates

69

Joint Ventures

-a business venture that is owned by 2+ entities, often from different countries

70

Master Limited Partnerships

-publicly traded partnerships only in the oil industry, the share of which trade on an exchange just like any other stock

71

Steam

-can be used via "steam cracking" to produce petrochemicals
-uses very high temperature steam to break apart molecules of ethane, propane, etc

72

Rigs

-shallow
-deep
-fracking
-offshore platform

73

Sources and Types of Currency Analysis

-Non-Economic or Political Crisis
-Macroeconomic Balance of Payments Approach
-Monetary Approach
-Asset Market Approach
-Technical Analysis
-Extraordinary Event

74

Devaluation

-the action of a government or central bank authority to drop the spot foreign exchange value of a currency that is pegged to another currency or to gold

75

Direct Intervention

-the purchase or the sale of a country's home currency by its own fiscal or monetary authority in order to influence the value of the domestic currency

76

Indirect Intervention

-actions taken by central banks or other monetary authorities to influence the supply and demand for a country's own currency

77

Most common form of Indirect Intervention

-the alteration of interest rate

78

Global Cost of Capital and Availability of Capital (WACC)

-weighted average cost of capital

79

Asian Crisis of 1997

-their economies shift from exporters to importers and then the importing stopped suddenly
-the thai bank over-lent past what their economy could support

80

Argentine Crisis of 2002

-they pegged their peso to our dollar and did not allow growth of money without hard currency to back it up in dollars
-decreased their output and increased their unemployment

81

Pip

-the smallest price change that a given exchange rate can make

82

How many basis points make 1%?

-100 basis points

83

How many pips make 1 basis point?

-100 pips

84

Crypto-Currency

-a currency created and exchanged using the secure information processes and principles of cryptography
-first and most well-know is bitcoin

85

DAO

-decentralized autonomous organization

86

Wallet

-where cryptocurrency is held

87

Top 5 Crypto-Currencies

-bitcoin
-ethereum
-ripple

88

Miners

-the ones that find the hashes for the transactions and earn money for it

89

Silk Road

-online black market and the 1st modern market
-best known as a platform for selling illegal drugs
-as part of the darkweb it was operated as a tor hidden service, such that online users were able to browse it anonymously and secure without potential traffic monitoring

90

Swift

-a banking system in the US
-charges transactions and translation costs

91

Flares

-the burning of excess gases that are released with crude oil

92

The US and Gold Standard

-1876-1913
-countries set the rate at which its currency could be converted to a weight of gold

93

Day Rate

-the daily cost of drilling for oil
-includes: cost of the rig, paying the people that operate the rig, supplies

94

Roustabout

-unskilled manual workers that work on oil rigs. They usually do tasks like cleaning and digging trenches

95

Mineral Rights

-rights pertaining to minerals (i.e. oil, natural gas, coal) located at or below the surface of the landowner's land
-the owner can sell or lease their land to others such as E&P companies
-in this case, the leasee would have to pay royalties to the owner of the mineral rights.

96

Trading Partners

-2+ participants in a business relationship.
-ex: biggest US trade partners include China and Mexico

97

Exchange Rate Quotes

-rate quoted from currency exchange.
-ex: EUR/USD = 1.25

98

EMU

-economic and monetary union
-a group of policies aimed at the convergence of EU member state economies
-ultimately led to the adoption of the Euro by EU members except for the UK and Denmark

99

Emerging Markets

-countries with fast growing economies and a growing middle class because of their economic developments and reforms
-the largest emerging markets are the BRIC countries

100

Fracking

-hydraulic fracturing
-drilling technique used to extract oil/natural gas from deep underground by injecting fluids at high pressure into rock beds to force them open

101

Liquid Gas

-when pipeline transportation of natural gas is not possible, the gas can be cooled until the methane condenses into a liquid

102

Flare Gas

-the burning of excess gases that are released with crude oil

103

Inflation

-rising price of goods and services.
-decline in purchase value of money

104

Commodity Market Report

-reports published daily or weekly from commodity research firms

105

Top 5 Major Fields

-us excluding shale
-us shale oil plays
-worldwide

106

Real and Hedged Net

-comparing time differences between things that happen now and things that happen later