Week 5 - International finance Flashcards Preview

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Flashcards in Week 5 - International finance Deck (17)
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1
Q

What are the two FOREX Quotations?

And what is the difference/how are they defined?

A
2
Q

What factors influence the bid-ask spread?

A
3
Q

How do you calculate the pertage spread?

A
4
Q

How do you find the bid cross rate and the ask cross rate for the following currencies:

A
5
Q

What is locational arbitrage?

A
  • Capitalising on exchange rate differentials between locations
  • Forces exchange rates to be similar across banks
6
Q

What is triangular arbitrage?

A
  • Engage in buying/selling three currencies
  • cross rates are not equal to quoted rates –> arbitrage
7
Q

If currency is overvalued then ____

If currency is (undervalued) then ____

A
  • (you sell/use it to) buy another currency
  • You buy that currency with another currency
8
Q

1 What does CIA stand for?

2 And what is it?

3 How is equilibrium attained?

A

1 Covered interest arbitrage

2 CIA form a relationship between IR (internal rate) of two countries and their forward exchange rate

2 So by deciding on a forward rate equal to the spot rate, investors can profit from investing i foreign countries.

3:

9
Q

What does IRP stand for?

  • And what is the relationship to CIA?
A

Interest Rate Parity

  • Interest rate and forward rates do not permit CIA
  • Forward rate should adjust to changes in IR
10
Q

What are the properties of IRP? Meaning what is the result of differences in i?

A
11
Q

How does the IRP graph look?

A
12
Q

What does PPP stand for?

A

Purchasing Power Parity

13
Q

What is PPP?

And what is the properties?

A
  • The “law of one price”
  • Exchange rates should adjust to changes in inflation
14
Q

What does the PPP graph look like?

Descibe it

A
15
Q

What does IFE stand for?

A

International Fisher Effect

16
Q

What is IFE?

and what is the properties?

A
  • Same ROI by either investing at home or abroad
  • Exchange rate should adjust to changes in IR
17
Q

What does the IFE look like?

A