Finance Chapter 21

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American Depository Receipt (ADR)

A security issued in the united state representing shares of a foreign stock and allowing the stock to be traded in the US

gilts

British and Irish government securities

forward exchage trade

Exchange to take place in the future

Eurobonds

International bonds issued in multiple countries but denominated in a single currency (usually the issuer's currency)

Euro-currency

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

Interest rate parity (IRP)

The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate

Purchasing power parity (PPP)

The idea that the exchange rate adjusts to keep purchasing power constant among currencies

Cross-rate

The implicit exchange rate between two currencies (usually non-US) quoted in some third currency (usually US dollars)

Foreign exchange market

The market in which one country's currency is traded for another's

London Inter-bank Offered Rate

The rate most international banks charge one another for overnight Eurodollar loans

Discount

a currency is selling for less in the forward market than in the spot market

Premium

a currency is selling for more in the forward market than in the spot market

Swaps

agreements to exchange two securities or currencies

Spot trade

an agreement to trade currencies based on the exchange rate today for settlement within two business days

Foreign bonds

international bonds issued in a single county, usually denominated in that country's currency

Translation exposure

risk of adverse effects on a firm's financial statements due to changes in exchange rates

Political risk

risk related to changes in value that arise because of political actions (off shore)

Unbiased forward rates (UFR)

the condition stating that the current forward rate is an unbiased predictor of the future spot exchange rate

Uncovered interest parity (UIP)

the condition stating that the expected percentage change in the exchange rate is equal to the difference in interest rates

Spot exchange rate

the exchange rate on a spot trade

Purchasing power parity

the idea that exchange rates adjust to keep purchasing power constant among currencies

Relative purchasing power parity

the idea that exchange rates adjust to keep relative purchasing power constant among currencies (the value of currencies adjust to reflect relative inflation, higher inflation leading to lower value and vice versa)

Exchange rate

the price of one country's currency expressed in terms of another country's currency

Exchange rate risk

the risk due to changes in exchange rates

Exchange rate risk

the risk related to having international operations in a world where relative currency values vary

International Fisher Effect (IFE)

the theory that real interest rates are equal across countires

forward exchange rate

to be used in the future


Kaugnay na mga set ng pag-aaral

LifePac Grade 12 Government Unit 3 Self Test 1

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Ch BDetermine which of the statements below is correct regarding the present value concept.

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