Topic 7 - Chapter 21
Eurobanks
banks that make loans and accept deposits in foreign currencies
American Options
A call or put option that can be exercised on or before its expiration date
Forward trade
Agreement to exchange currency at some time in the future
Swaps
Agreements to exchange to securities of currencies
Spot trade
An agreement to trade currencies based on the exchange rate today for settlement in two days
Gilts
British and Irish government securities, including issues of local british authorities and some overseas public-sector offerings
Export development Canada (EDC)
Federal crown corporation that promotes Canadian exports by making loans to foreign purchasers
Foreign Bonds
International bonds issued in a single country, usually denominated in that country's currency
Eurobond
International bonds issued in multiple countries but denominated in a single currency
Note issuance facility
Large borrowers issue notes up to one year in maturity in the euromarket. Banks underwrite or sell notes
Eurocurrency
Money deposited in a financial centre outside of the country whose currency is involved
political risk
Risk related to changes in value that arise because of political actions
Counter party
Second borrower in currency swap. Counterparty borrows funds in currency desired by principal
Forward exchange rate
The agreed-on exchange rate to be used in a forward trade
Interest rate parity (IRP)
The condition starting that the interest rate differential between two countries is equal to the difference between the forward exchange rate and the spot exchange rate
Unbiased forward issues
The condition stating that the current forward rate is an unbiased predictor of the future exchange rate
Uncovered interest parity
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 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 (non us) quoted in some third currency (us)
Foreign exchange market
The market where one country's currency is traded for another's
Exchange rate
The price of one country's currency expressed in another countrys currency
London international offer rate (LIBOR)
The rate most international banks charge one another for overnight eurodollar loans
General fisher effect
The theory that real interest rates are equal across countries
