TEST BANK For Global Business Today, 12th Edition
By Charles Hill, Verified Chapters 1 - 17, Complete
Newest Version
Foreign Exchange Market - ANSWER A market for converting the currency of one
country into that of another country.
Exchange Rate - ANSWER The rate at which one currency is converted into
another.
Foreign Exchange Risk - ANSWER The risk that changes in exchange rates will hurt
the profitability of a business deal.
Currency Speculation - ANSWER Moving funds from one currency to another over
the short-term in hopes of profiting from shifts in exchange rates.
Carry Trade - ANSWER A kind of speculation that involves borrowing in one
currency were interest rates are low, and then using the proceeds to invest in
another currency where interest rates are high
Spot Exchange Rate - ANSWER The rate at which a foreign exchange dealer
converts currency on any particular day.
Forward Exchange - ANSWER When two parties agree to exchange currency and
execute a deal at some specific date in the future
Forward Exchange Rate - ANSWER The exchange rate governing forward
exchange transactions, calculated at the time of the exchange but based on future
expectations.
Currency Swap - ANSWER The simultaneous purchase and sale of a given amount
of foreign exchange for two different value dates.
Arbitrage - ANSWER The purchase of securities in one market for immediate resale
in another market to profit from a price discrepancy.
Law of One Price - ANSWER The principle that in competitive markets free of
transportation costs and barriers to trade, identical products sold in different
countries must sell of the same price when their price is expressed in the same
currency.
Efficient Market - ANSWER A market in which prices reflect all available information
and trade is not restricted
, Fisher Effect - ANSWER The theory that nominal interest rates (i ) in each country
equal the required real rate of interest (r) and expected rate of inflation (I) over the
time period for which the funds are to be lent.
That is, i = r + I
International Fisher Effect - ANSWER The theory that for any two countries, the spot
exchange rate should change in an equal amount but in the opposite direction to the
difference in normal interest rates between countries.
Bandwagon Effect - ANSWER When traders move like a herd, all in the same
direction and at the same time, in response to each others' perceived actions.
Inefficient Market - ANSWER A market in which prices do not reflect all available
information.
Freely Convertible Currency - ANSWER When a country's government allows both
residents and nonresidents to convert its currency into foreign currency.
Externally Convertible Currency - ANSWER When a country's government allows
only nonresidents to convert the currency into foreign currency.
Nonconvertible Currency - ANSWER When a country's government allows neither
residents nor
nonresidents to convert its currency into a foreign currency.
Capital Flight - ANSWER When residents and nonresidents rush to convert their
holdings of domestic currency into a foreign currency, usually
taking place when domestic currency is depreciating rapidly or a country is facing
dim economic prospects
Countertrade - ANSWER The trade of goods and services produced in one country
for the goods and services of another country
Transaction Exposure - ANSWER The extent to which the income from individual
transactions is affected by fluctuations in foreign exchange values.
Translation Exposure - ANSWER The extent to which the reported consolidated
results and balance sheets of a corporation are affected by fluctuations in foreign
exchange values.
Economic Exposure - ANSWER The extent to which a firm's future international
earning power is affected by changes in exchange rates.
Lead Strategy - ANSWER Attempting to collect foreign currency receivables early
when a foreign currency is expected to depreciate and paying foreign currency
payables before they are due when a currency is expected to appreciate.
Lag Strategy - ANSWER Delaying collection of foreign currency receivables if that
currency is expected to appreciate and delaying payables if that currency is
expected to depreciate.
By Charles Hill, Verified Chapters 1 - 17, Complete
Newest Version
Foreign Exchange Market - ANSWER A market for converting the currency of one
country into that of another country.
Exchange Rate - ANSWER The rate at which one currency is converted into
another.
Foreign Exchange Risk - ANSWER The risk that changes in exchange rates will hurt
the profitability of a business deal.
Currency Speculation - ANSWER Moving funds from one currency to another over
the short-term in hopes of profiting from shifts in exchange rates.
Carry Trade - ANSWER A kind of speculation that involves borrowing in one
currency were interest rates are low, and then using the proceeds to invest in
another currency where interest rates are high
Spot Exchange Rate - ANSWER The rate at which a foreign exchange dealer
converts currency on any particular day.
Forward Exchange - ANSWER When two parties agree to exchange currency and
execute a deal at some specific date in the future
Forward Exchange Rate - ANSWER The exchange rate governing forward
exchange transactions, calculated at the time of the exchange but based on future
expectations.
Currency Swap - ANSWER The simultaneous purchase and sale of a given amount
of foreign exchange for two different value dates.
Arbitrage - ANSWER The purchase of securities in one market for immediate resale
in another market to profit from a price discrepancy.
Law of One Price - ANSWER The principle that in competitive markets free of
transportation costs and barriers to trade, identical products sold in different
countries must sell of the same price when their price is expressed in the same
currency.
Efficient Market - ANSWER A market in which prices reflect all available information
and trade is not restricted
, Fisher Effect - ANSWER The theory that nominal interest rates (i ) in each country
equal the required real rate of interest (r) and expected rate of inflation (I) over the
time period for which the funds are to be lent.
That is, i = r + I
International Fisher Effect - ANSWER The theory that for any two countries, the spot
exchange rate should change in an equal amount but in the opposite direction to the
difference in normal interest rates between countries.
Bandwagon Effect - ANSWER When traders move like a herd, all in the same
direction and at the same time, in response to each others' perceived actions.
Inefficient Market - ANSWER A market in which prices do not reflect all available
information.
Freely Convertible Currency - ANSWER When a country's government allows both
residents and nonresidents to convert its currency into foreign currency.
Externally Convertible Currency - ANSWER When a country's government allows
only nonresidents to convert the currency into foreign currency.
Nonconvertible Currency - ANSWER When a country's government allows neither
residents nor
nonresidents to convert its currency into a foreign currency.
Capital Flight - ANSWER When residents and nonresidents rush to convert their
holdings of domestic currency into a foreign currency, usually
taking place when domestic currency is depreciating rapidly or a country is facing
dim economic prospects
Countertrade - ANSWER The trade of goods and services produced in one country
for the goods and services of another country
Transaction Exposure - ANSWER The extent to which the income from individual
transactions is affected by fluctuations in foreign exchange values.
Translation Exposure - ANSWER The extent to which the reported consolidated
results and balance sheets of a corporation are affected by fluctuations in foreign
exchange values.
Economic Exposure - ANSWER The extent to which a firm's future international
earning power is affected by changes in exchange rates.
Lead Strategy - ANSWER Attempting to collect foreign currency receivables early
when a foreign currency is expected to depreciate and paying foreign currency
payables before they are due when a currency is expected to appreciate.
Lag Strategy - ANSWER Delaying collection of foreign currency receivables if that
currency is expected to appreciate and delaying payables if that currency is
expected to depreciate.
