RMI 3567 Exam 1 Questions & Answers Already Passed!!

FX Swap - Answer--Combines a spot transaction with the benefits of a forward contract -One currency is swapped for another (usually a spot transaction) and swapped back (via a forward contract) to the original currency at a future date -Example: go to Europe and exchange USD to EUR and when you come back home you exchange your remaining EUR back to USED FX Vehicle Currency - Answer-Usually a third party currency that makes exchanges much easier, acting as the vehicle to the trade FX future - Answer--Futures are standardized versions of forwards -Standardized contracts for currencies that are traded most often (Ex. NY Stock Exchange) -Agree to trade these currencies at a specific rate on a specific date -Can do any future contracts as a forward FX forward - Answer--An agreement between two parties to exchange one currency for another at a fixed rate at some date in the future -Set the date and amount beforehand -Over the counter contract -Between 2 parties (typically a bank) FX spot price - Answer--Current Exchange Rate -Involves exchanging one currency for another at the prevailing exchange rate (Similar to a tourist changing money at the local bank) Natural Hedge - Answer-The practice of offsetting foreign asset exposures effectively by borrowing funds to finance the assets in the same currency. This approach reduces the net exposure of the parent company. Also called a balance sheet hedge. Over the Counter - Answer-Every trade is a private transaction between the dealing bank and client. Most currency trading is done through OTC transactionsOFAC - Answer-Office of Foreign Assets Control- monitors and prhobits companies from completing ecomnomic deals with sanctioned countries. Violation can occur in heavy fines for the company in violation OFAC License - Answer-Two types- General and Specific General- Authorizes a type of transaction for a class of persons without the need to apply for the license Specific- A particular person or entity in response to a written application FCPA - Answer-Designed to prevent bribery, specifically attempts to bribe foreign governmantal decisions, and prohibits bribery from foreigners to U.S. officials Disgorgement - Answer-In legal usage, the forced giving up of profits made through illegal activity, most commonly insider trading. Foreign direct investment - Answer-Investment made by an individual or organization to give it direct control/ decision making power (ex. majority equity stake in a firm) foreign portfolio investment - Answer-investments without controlling power (ex. minority stake in a firm) Forced abandonment - Answer-A company having to leave their current place of work due to unsafe working conditions from threats around the location (protests, war) Currency convertibility risks - Answer--Profits, dividends, inter-company debit servicing and any repatriation of funds can be considered. Often happens at times of financial crisis -The RISK of loss arising from an inability to convert local currency into a fully CONVERTIBLE CURRENCY and/or to repatriate convertible currency back to a home country as a result of EXCHANGE CONTROLS Repatriate - Answer-to return to one's country of origin Expropriate - Answer-A host country seizing the assets of a foreign company (Mexico gas example) Expatriate - Answer-A U.S. citizen working in a foreign countryLocal national - Answer-Someone working in the same country they are a citizen of Third country national - Answer-Individuals working in countries that they are not citizens of Territory - Answer-Where a peril or loss occurs