Ch. 18 International Aspects of Financial Management

Forward trade

Agreement to exchange currency at some time in the future.

Swaps

Agreements to exchange two securities or currencies.

Spot Trade

An agreement to trade currencies based on the exchange rates today for settlement within two business days.

Gilts

British and Irish government securities.

Foreign Bonds

International bonds issued in a single country, usually denominated in that country's currency.

Eurobonds

International bonds issues multiple countries but denominated in a single currency usually the issuers currency.

Eurocurrency

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

Political Risk

Risk related to changes in value that arise because of political actions.

American Depositary Receipt (ADR)

Security issued in the U.S representing shares of a foreign stock, allowing that stock to be traded in the U.S.

Foreign Exchange Market

The Market in which one countries currency is traded for another.

Forward exchange rate

The agreed upon exchange rate to be used in a forward trade.

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.

Spot exchange rate

The exchange rate on spot trade.

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 U.S quoted in some third currency usually U.S dollar.

Exchange Rate

The price of one country's expressed in terms of another country's currency.

London Interbank Offer Rate (LIBOR)

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

Exchange rate risk

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