FIN 320F Unit 15

3. What is the balance in the official reserves account?

-10

Money deposited in a financial center outside the country whose currency is involved

Eurocurrency

What is the acronym for the interest rate most international banks charge one another for overnight Eurodollar loans?

LIBOR

The different types of exchange rate risk include which of the following?

Long-term exposure Translation exposure Short-term exposure

What are some strategies for hedging long-term exchange rate risk?

Matching foreign currency inflows and outflows

Which of the following are true concerning triangle arbitrage?

it is a profitable situation involving three separate currency exchange transactions it helps keep the currency market in equilibrium

Unanticipated changes in relative economic conditions that affect the value of a foreign operation are known as ___________.

long-term exposures to exchange rate risk

The foreign exchange market is where________.

one country's currency is traded for another country's currency

A foreign bond refers to a bond:

that is issued in a single country, denominated in the currency of that country

Which of the following agreements is a spot exchange rate for the Norwegian krone?

6NKr for $1 settled in 2 days

Almost all currency trading takes place in terms of the______.

U.S. dollar

The management of exchange rate risk should probably be centralized so that the firm has an understanding of _____________.

its overall positions in foreign currency

When a U.S. company calculates its accounting net income, it must report all income, including income from foreign operations, in dollar. This leads to ___________ exposure to exchange rate risk.

translation

2. What is the balance on capital account?

+21

4. By how much is the statistical discrepancies in surplus or deficit?

-1

Gilts are securities issued by the______

British and Irish governments

Currently, $1 will buy Can$.99 while $1 will buy A$.95. How many Canadian dollars are needed to buy one Australian dollar?

Can$1.04 (Can$.99/$1)x($1/A$.95)=Can$1.04/A$1

What is one of the most important aspects of doing business internationally?

Exchange rate risk

True or false: Political risk refers only to problems for U.S. companies caused by foreign governments.

False

An agreement to exchange currencies at a future point in time at an exchange rate that is agreed upon today is called ____________.

a forward trade

The use of local financing from the government of the foreign country where the operation is located ______.

can reduce political risk

The implicit exchange rate between two currencies when both are quoted in a third currency is called the ______.

cross-rate

If the Japanese Yen is less expensive in the forward market than it is today, it is said to be selling at a(n)_______

discount

An interest rate swap involves swapping a _______ payment for a ________payment

floating rate; fixed rate fixed rate;floating rate

The use of ________ exchange agreements can help reduce the short term exposure to exchange rate risk.

forward

Users of the foreign exchange market include_______.

importers who pay for goods using foreign currencies foreign exchange brokers who match buy and sell orders speculators who try to profit from change in exchange rates

Please use this information on the following four questions. You are given the following transactions (in billions): •Intel (a US company) receives $4 in royalty payments from a Korean firm. •The US Federal Reserve sells $10 and purchases euros •US bondholders pay $12 in interest to Japanese investors •US imports $10 in consumer electronics •German investors buy $5 in Dell stock •US exports $8 in lumber •Indian investors buy $16 in US T-Bills Assume that these transactions are the only ones that occur during the reporting period. That is, do not worry about the offsetting credit/debit that would usually occur. Using these transactions, answer the following questions. Please enter only the numbers and do not enter a dollar sign. You should signify whether they are surpluses by using a "+' sign and deficits by entering a "-" sign. 1. What is the balance on current account?

-10

Which of the following refer to a firm with a large portion of its business outside of its parent country?

-An international corporation -A multinational

Currently, the spot exchange rate for the Swiss franc is SF 1=$1.10 or SF 1=$1.12 90 days forward. Which of the following is true?

-The dollar is selling at a discount to the Swiss franc -The Swiss franc is at a forward premium

A security issued in the United States representing shares of a foreign stock is called a(n):

American Depository Receipt

Match the corporate finance terminology below with its correct definition.

ADR - A security issued in the US that represents shares of foreign stock. Cross-rate - The implicit exchange rate between two currencies quoted in a third currency. Eurobond - A bond issued in multiple countries but denominated in a single currency. Eurocurrency - Money deposited in a financial center outside of the country with the involved currency.

Alpha Co.Imports raw materials and uses forward contracts to reduce which of the following risks?

Short-run exposure to exchange rate risk