Chapter 3: International Financial Markets
Smithsonian Agreement
A December 1971 agreement that adjusted the fixed exchange rates established at the Bretton Woods Conference of 1944. The other currencies were still pegged to the dollar until March 1973.
Asian Money Market
A market involving mostly dollar-denominated deposits. Emerged to accommodate the needs of businesses that were using the U.S. Dollar as a medium of exchange for international trade.
Foreign Exchange Market
Allowance of the exchange of one currency for another.
Forward Contract
An agreement between an MNC and a foreign exchange dealer that specifies the currencies to be exchanged, the exchange rate, and the date at which the transaction will occur
Eurobonds
Bonds that are sold in countries other than the country whose currency is used to denominate the bonds.
Foreign Exchange Dealers
Intermediaries in the foreign exchange market by exchanging currencies desired by MNCs or individuals.
Foreign Bond
Issued by a borrower foreign to the country where the bond is placed.
Eurocredit Loans
Loans of one year or longer that are extended by banks to MNCs or government agencies in Europe, which are transacted in the Eurocredit Market
Floating Rate Notes
When Eurobonds have a variable rate provision that adjusts the coupon rate over time according to prevailing market rates
International Money Market Securities
When MNCs and government agencies issue debt securities with a short-term maturity in the international money market
Interbank Market
When a bank begins to experience a shortage of a particular foreign currency, it can purchase that currency from other banks
Petrodollars
United States dollar earned through the export of petroleum
Bid Price
Buy Quote
American Depository Receipts
Certificates representing bundles of the non-U.S. firm's stock.
Parallel Bonds
Foreign bonds when the currency denominating each type of bond is determined by the country where it is sold
Bretton Woods Agreement
In 1944, an international agreement called for fixed exchange rates between currencies
Basel Accord
In 1988, the central banks of 12 developed countries and their respective commercial banks were required to maintain capital equal to at least 4 percent of their assets.
Yankee Stock Offerings
Non-U.S. corporations that need large amounts of funds sometimes issue stock in the United States because the U.S. new-issues market is so liquid.
Single European Act
Phased in by 1992. Capital can flow freely throughout Europe. Banks can offer a wide variety of lending, leasing, and securities activities in the EU. Regulations regarding competition, mergers, and taxes are similar throughout the EU. A bank established in any one of the EU countries has the right to expand into any or all of the other EU countries.
Currency Call Option
Provides the right to buy a specific currency at a specific price (strike price or exercise price) within a specific period of time.
Currency Put Option
Provides the right to sell a specific currency at a specific price within a specific period of time
Indirect Quotations
Quotations that report the number of units of a foreign currency per dollar
Direct Quotations
Quotations that report the value of a foreign currency in dollars per unit
Ask Price
Sell Quote
Currency Futures Contract
Specifies a standard volume of a particular currency to be exchanged on a specific settlement date
Bid/Ask Spread
The difference between the bid and ask prices
Eurodollars
The dollar deposits in banks in Europe
Futures Rate
The exchange rate at which one can purchase or sell a specified currency on the settlement date in accordance with the futures contract.
Spot Rate
The exchange rate at which one currency is traded for another in the spot market
Forward Rate
The exchange rate, specified in the forward contract, at which the currencies will be exchanged
Forward Market
The market in which forward contracts are traded
Spot Market
The market where immediate exchange transactions occur
London Interbank Offer Rate
The rate most often charged for very short-term loans between banks.
Cross Exchange Rate
The type of rate that reflects the amount of one foreign currency per unit of another foreign currency
