FRL 3000 ch 21

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

6NKr for $1 settled in 2 days

Gilts are securities issued by the ______________.

British and Irish governments

What is the implicit exchange rate between two currencies when both are quoted in a third currency?

The cross rate

Conditions that must be present for absolute purchasing power to exist include which of the following?

The goods must be identical. There must be no trade barriers.

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

Translation

A ______ trade is an agreement to exchange currency at some time in the future.

forward

British and Irish government securities are called

glits

If an international firm borrows money in the foreign country where it has operations it can reduce ___.

long-run exchange rate exposure

Corporations with significant foreign operations are often called ___.

multinationals

The foreign exchange market is where ____.

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

The ______ of one currency based on another country's currency is known as the exchange rate.

price

The day-to-day fluctuations in exchange rates create _____ exposure.

short-term exchange rate risk

An agreement to trade currencies within two business days at today's exchange rate is called a _____ trade.

spot

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

FASB 52 requires that assets and liabilities be translated at the current exchange rate and that the gains and losses be recorded ____.

against shareholders' equity

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

cross-rate

The foreign exchange market allows for the trading of ______.

currency

True or false: For multinational firms, it is important to have decentralized departments for managing exchange rate risks so that there is a different team for each type of currency exposure.

false Reason: For multinationals, it is key to have a centralized group.

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

its overall positions in foreign currency

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

Long-term exposure Short-term exposure Translation exposure

Which of the following are conditions necessary for absolute purchasing power parity?

No transaction costs No trade barriers Identical goods

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

long-term exposures to exchange rate risk

A _______ is a bond issued in multiple countries, but denominated in a single currency, typically the issuer's home currency. (Enter one word in the blank.)

Eurobond

A bond issued in multiple countries, but denominated in a single currency is called _____.

Eurobond

The natural consequences of international operations in a world where relative currency values move up and down is called ____.

exchange rate risk

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

forward

Unlike Eurobonds, _______bonds are issued in a single country and are usually denominated in that country's currency.

foreign

The price of one country's currency expressed in terms of another country's currency is called the ___.

Exchange rate

If U.S. dollars are deposited in banks outside the U.S. banking system, they are referred to as ___.

Eurocurrency

A security issued in the United States that represents shares of a foreign stock is called a(n) ___.

American Depository Receipt

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

Which of the following are correct when describing purchasing power parity? (Select all that apply.)

Purchasing power parity is a major factor in the rate of change in exchange rates. Parity is expressed as both absolute and relative. Exchange rates adjust to keep purchasing power level between currencies.

Match the international corporate finance terminology below with its correct definition. ADR Cross-rate Eurobonds Eurocurrency

ADR A security issued in the US that represents shares of a 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

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

eurocurrency

Bonds that are issued in a single country and are usually denominated in that country's currency are called _____.

Foreign bonds