SOM 354 Final Exam (Ch. 10-13) Vocab
well answered already passed
Foreign Exchange Market - correct answer ✔✔A market for converting the currency of one
country into that of another country
exchange rate - correct answer ✔✔the rate at which one currency is converted into another
foreign exchange risk - correct answer ✔✔The risk that changes in exchange rates will hurt the
profitability of a business deal
currency speculation - correct answer ✔✔Involves short-term movement of funds from one
currency to another in hopes of profiting from shifts in exchange rates.
Carry Trade - correct answer ✔✔a kind of speculation that involves borrowing in one currency
where interest rates are low, and then using the proceeds to invest in another currency where
interest rates are high
spot exchange rate - correct answer ✔✔the exchange rate at which a foreign exchange dealer
will convert one currency into another that particular day
forward exchange - correct answer ✔✔When two parties agree to exchange currency and
execute a deal at some specific date in the future.
forward exchange rate - correct answer ✔✔the exchange rate governing a forward exchange
transaction
, currency swap - correct answer ✔✔simultaneous purchase and sale of a given amount of
foreign exchange for two different value dates
Arbitrage - correct answer ✔✔the purchase of securities in one market for immediate resale in
another to profit from a price discrepancy
law of one price - correct answer ✔✔in competitive markets free of transportation costs and
barriers to trade, identical products sold in different countries must sell for the same price when
their price is expressed in the same currency
efficient market - correct answer ✔✔A market where prices reflect all available information.
fisher effect - correct answer ✔✔Nominal interest rates (i) in each country equal the required
real rate of interest (r) and the expected rate of inflation over the period of time for which the
funds are to be lent (pi). That is, i = r + pi
international Fisher effect (IFE) - correct answer ✔✔For any two countries, the spot exchange
rate should change in an equal amount but in the opposite direction to the difference in
nominal interest rates between countries
bandwagon effect - correct answer ✔✔movement of traders like a herd, all in the same
direction and at the same time, in response to each other's perceived actions
inefficient market - correct answer ✔✔one in which prices do not reflect all available
information
Freely Convertible Currency - correct answer ✔✔A country's currency is freely convertible when
the government of that country allows both residents and nonresidents to purchase unlimited
amounts of foreign currency with the domestic currency.
well answered already passed
Foreign Exchange Market - correct answer ✔✔A market for converting the currency of one
country into that of another country
exchange rate - correct answer ✔✔the rate at which one currency is converted into another
foreign exchange risk - correct answer ✔✔The risk that changes in exchange rates will hurt the
profitability of a business deal
currency speculation - correct answer ✔✔Involves short-term movement of funds from one
currency to another in hopes of profiting from shifts in exchange rates.
Carry Trade - correct answer ✔✔a kind of speculation that involves borrowing in one currency
where interest rates are low, and then using the proceeds to invest in another currency where
interest rates are high
spot exchange rate - correct answer ✔✔the exchange rate at which a foreign exchange dealer
will convert one currency into another that particular day
forward exchange - correct answer ✔✔When two parties agree to exchange currency and
execute a deal at some specific date in the future.
forward exchange rate - correct answer ✔✔the exchange rate governing a forward exchange
transaction
, currency swap - correct answer ✔✔simultaneous purchase and sale of a given amount of
foreign exchange for two different value dates
Arbitrage - correct answer ✔✔the purchase of securities in one market for immediate resale in
another to profit from a price discrepancy
law of one price - correct answer ✔✔in competitive markets free of transportation costs and
barriers to trade, identical products sold in different countries must sell for the same price when
their price is expressed in the same currency
efficient market - correct answer ✔✔A market where prices reflect all available information.
fisher effect - correct answer ✔✔Nominal interest rates (i) in each country equal the required
real rate of interest (r) and the expected rate of inflation over the period of time for which the
funds are to be lent (pi). That is, i = r + pi
international Fisher effect (IFE) - correct answer ✔✔For any two countries, the spot exchange
rate should change in an equal amount but in the opposite direction to the difference in
nominal interest rates between countries
bandwagon effect - correct answer ✔✔movement of traders like a herd, all in the same
direction and at the same time, in response to each other's perceived actions
inefficient market - correct answer ✔✔one in which prices do not reflect all available
information
Freely Convertible Currency - correct answer ✔✔A country's currency is freely convertible when
the government of that country allows both residents and nonresidents to purchase unlimited
amounts of foreign currency with the domestic currency.
