Foreign Exchange Market
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Foreign Exchange Market - (correct Answer) - is the market for converting currency from one country
into another country currency
exchange rate - (correct Answer) - rate at which one currency is converted into another
Foreign Exchange Market enables - (correct Answer) - 1. conversion of currency 2. insures against foreign
exchange risk (the adverse consequences of unpredictables changes in the exchange rate)
the spot exchange rate - (correct Answer) - the rate at which one foreign exchange dealer converts one
currency into another currency on a particular day
the forward exchange rate - (correct Answer) - the exchange rate governing a transaction in which two
parties agree to exchange currency and execute a deal at some specific date in the future
currency swap - (correct Answer) - the simultaneous purchase and sale of a given amount foreign
exchange for two different value dates
arbitrage - (correct Answer) - the process of buying a currency low and selling it high
Important factors in future exchange rates - (correct Answer) - 1. Inflation 2. interest rates 3. Market
psychology
The law of one price - (correct Answer) - in competitive markets free of transportion costas and barriers
to trade identical products sold in different countries must sell for the same price when their price is
expressed in terms of the same currency...
Purchasing power parity - (correct Answer) - ...asks how much money would be needed to purchase the
same goods and services in two countries, and uses that to calculate an implicit foreign exchange rate
how are prices related to exchange rate movements? - (correct Answer) - law of one price, purchasing
power party...
How do interest rates affect exchange rates - (correct Answer) - Fischer effect, International Fischer effect
Fischer Effect - (correct Answer) - the nominal interest rate equals the real rate plus expected inflation
International Fischer Effect - (correct Answer) - Suggests that for any 2 countries the spot exchange rate
should change in equal amount but move in the opposite direction to the difference in nominal interest
rates between the two countries.
Save
Foreign Exchange Market - (correct Answer) - is the market for converting currency from one country
into another country currency
exchange rate - (correct Answer) - rate at which one currency is converted into another
Foreign Exchange Market enables - (correct Answer) - 1. conversion of currency 2. insures against foreign
exchange risk (the adverse consequences of unpredictables changes in the exchange rate)
the spot exchange rate - (correct Answer) - the rate at which one foreign exchange dealer converts one
currency into another currency on a particular day
the forward exchange rate - (correct Answer) - the exchange rate governing a transaction in which two
parties agree to exchange currency and execute a deal at some specific date in the future
currency swap - (correct Answer) - the simultaneous purchase and sale of a given amount foreign
exchange for two different value dates
arbitrage - (correct Answer) - the process of buying a currency low and selling it high
Important factors in future exchange rates - (correct Answer) - 1. Inflation 2. interest rates 3. Market
psychology
The law of one price - (correct Answer) - in competitive markets free of transportion costas and barriers
to trade identical products sold in different countries must sell for the same price when their price is
expressed in terms of the same currency...
Purchasing power parity - (correct Answer) - ...asks how much money would be needed to purchase the
same goods and services in two countries, and uses that to calculate an implicit foreign exchange rate
how are prices related to exchange rate movements? - (correct Answer) - law of one price, purchasing
power party...
How do interest rates affect exchange rates - (correct Answer) - Fischer effect, International Fischer effect
Fischer Effect - (correct Answer) - the nominal interest rate equals the real rate plus expected inflation
International Fischer Effect - (correct Answer) - Suggests that for any 2 countries the spot exchange rate
should change in equal amount but move in the opposite direction to the difference in nominal interest
rates between the two countries.
