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International_Business > Week 2 > Flashcards

Week 2 Flashcards

1
Q

What happened on 15. January 2015

A

terminate the minimum exchange rate of CHF 1.20 per Euro

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2
Q

Currency Risk

A

Vaue of currencies can fluctuate and with it the exchange rates

  • currencies appreciate (go up)
  • currencies depreciate (go down)
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3
Q

Demand for foreign exchange & supply of foreign exchange

A
  • tourism
  • trade
  • investment

supply of foreign exchange:
- government

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4
Q

what happened in 2015 to the USD and what were the consequences

A

USD rose more than 20% against Euro and JPY.

  • fewer tourists
  • sales at stores decreased in the USA
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5
Q

what happened end of january 2015

A

Greece could not pay back their loans so the euro has less worth than USD

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6
Q

International financial management tasks

A
  1. choosing a capital structure
  2. raising funds for the firm
  3. managing working capital and cash flow
  4. performing cpaital budgeting
  5. managing currency risk
  6. managing the diversity of international accounting and tax practices
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7
Q

three types of currency exposure

A

transaction risks
translation risks
economic risks

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8
Q

transaction and its measures

A

transaction risk affects ongoign contractual transactions

measures:
usually reduced, or hedged by entering into currency swaps and other similar securities

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9
Q

translation exposure

A

translation exposure results when MNE translated financial statements denominated in foreign currency into the functional currency of the parent firm as part of consolidating international financial results.

Note that gains or lesses in translation exposure are paper or virtual, changes do not affect cash flow directly

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10
Q

economic exposure

A

results from exchange-rate fluctuations that affect the pricing of products and inputs and the value of foreign investments.

exchange rate fluctuation help or hur sales by making the firm’s products realtively more or less expensive for foreign buyers.

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11
Q

what does economic exposure affect

A

long-term profitability through changes in revenues and expenses. such effects are reflected in the firm’s financial statements

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12
Q

managing exposure to currency risk through hedging

A

forward contract

futures contract

currency options

currency swap

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13
Q

forward contract

A

exchange two currencies at a specified exchage rate on a set future date

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14
Q

futures contract

A

buy or sell a currency in exchange for another at a specified price ona speficied date. standard amounts and maturities apply.

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15
Q

currency option

A

gives the purchaser the right to buy a certain amount of foreign currency at a set exchange rate within a specified length of time –> call / put options

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16
Q

currency swap

A

exchange one curreny for another according to a specified schedule

17
Q

Best practice in minimizing currency exposure

A

centralize currency management with the MNE

monitor changes in key currencies

monitor long-term economic and regulatory trends

decide on the level of risk the company can tolerate

distinguish economic exposure from transaction and translation exposures

emphasize flexibility in international operations

18
Q

BIS

A

Bank of International settlement

  • members: 60 central banks
  • oldest one 1930 (in Basel)
  • governors of 30 BIS member - bimonthly meetings to discuss recent developments
  • mission: pursuite of monetary and financial stability, foster international cooperation and to act as a bank of central banks
19
Q

Bretton woods institutions

A

international monetary fund (France)

  • exchange rate stability
  • monitors exchange systems
  • provides funding to developing economies
20
Q

Bretton woods institutions: special cases

A

soviet union

  • soviet union at the conference, but did not ratify the agreement (cold war)
  • in 1992 Russia joined both institutions

china

  • PR china outside the system after 1949 revolution
  • in 1980 PR china joined both institutions

switzerland
- joined the two institutions after a popular referendum in may 1992 (56% yes-votes)

21
Q

key participants of the global monetary and financial system (Pyramid)

A
  1. Firm level
    - the firm
  2. national infrastructure level
    - national stock exchanges and board markets
    - commercial banks
  3. national government level
    - central banks
  4. international organization level
    - international monetary fund
    - bank for international settlements
    - world bank
22
Q

constituency world bank group

A 
Azerbaijan
Kazakhistan
Hyrgyzstan
Poland
Serbia
Switzerland
Tajikistan
Uzbekistan
23
Q

constituency AIIB

A 
Denmark
Hungary
Iceland
Norway
Pland
Sweden
Switzerland
United Kingdom
24
Q

constituency IMF

A 
Azerbaijan
Kazakhistan
Kyrgyzstan
Poland
Serbia
Switzerland
Tajikistan
Turkmenistan
Uzbekistan
25
Q

Exchange Rate Systems over the years

A
  1. Gold Standard Era (1879 - 1914)
    - firstly we compare the currency with gold
  2. Bretton Woods Era
    (1945 - 1971)
    - compare the currencies with USD
  3. Post Bretton Woods (1971 - present)
    - everyone is independent
26
Q

managed floating exchange rate system

A

there is a upper and lowre limit - where the money can fluctuate

27
Q

where are the International Financial Centers in Asia (IFCs) located

A
  • Hong Kong

- Singapore

28
Q

Abenomics

A

consists of menetary policy, fiscal policy and ecnomic growth strategies to encourage orivateinvestments

29
Q

the three arrows of Abenomics

A
  1. monetary easing
    - 2% inflation target to be achieved at the earliest possible time mainly through the expansion of the monetary base
  2. fiscal stimulus
    - about US$100 billion in January 2013 and an extra US$53 billion in December 2013 in an attempt to boost growth
  3. structural reforms
    - in areas such as agriculture, energy and healthcare which will take longer to be implemented

International_Business (16 decks)

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