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International Business - Chapter 7
Mike Peng and Klaus Meyer
31
Business
Post-Graduate
01/09/2014

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Cards

Term
Exchange rate
Definition
The price of one currency in another currency
Term
Appreciation ( of a currency)
Definition
An increase in the value of a currency
Term
Depreciation ( of a currency)
Definition
A decrease in the value of a currency
Term
Currency exchange market
Definition
A market where individuals, firms , governments and banks buy and sell foreign currencies
Term
Purchasing power parity (PPP) hypothesis
Definition
Hypothesis suggesting that, in the long run , baskets of goods would cost the same in all currencies (' law of one price')
Term
Relative PPP hypothesis
Definition
Hypothesis suggesting that changes in exchange rates will be proportional to differences in inflation rates
Term
Inflation
Definition
The ( average) change of prices over time
Term
Interest rate parity
Definition
Hypothesis suggesting that the interest rate in two currencies should be the same after accounting for spot and forward in exchange rates
Term
Spot market rate
Definition
The exchange rate for immediate payment
Term
Forward transaction
Definition
A currency exchange transaction in which participants buy and sell currencies now for future delivery, typically in 30, 90 or 180 days, after the date of the transaction.
Term
Forward exchange rate
Definition
The exchange rate for forward transactions
Term
Balance of payments (BoP)
Definition
A country's international transaction statement including merchandise trade, service trade and capital movement
Term
Current account of ( of the BoP)
Definition
Exports and imports of goods and services
Term
Capital and financial account ( of the BoP)
Definition
Sales and purchases of financial assets
Term
Bandwagon effect
Definition
The result of investors moving as a herd in the same direction at the same time
Term
Capital flight
Definition
A phenomenon in which a large number of individuals and companies exchange domestic currencies for a foreign currency
Term
Gold standard
Definition
A system in which the value of most major currencies was maintained by fixing their prices in terms of gold, which served as the common denominator
Term
Bretton Woods System
Definition
A system in which all currencies were pegged at a fixed rate to the US dollar
Term
International Monetary Fund (IMF)
Definition
International organisation that provides financial assistance to countries experiencing temporary imbalances in their balance of payment and helps securing macroeconomic stability
Term
World Bank
Definition
International organisation that provides loans for specific projects in developing countries
Term
Exchange rate risk ( or currency risk)
Definition
The risk of financial losses because of unexpected changes in exchange rates
Term
Strategic hedging
Definition
Organising activities in such a way that currencies of revenues and expenditures match
Term
Currency risk diversification
Definition
Reducing overall risk exposure by working with a number of different currencies
Term
Currency hedging
Definition
A transaction that protects traders and investors from exposure to the fluctuations of the spot rate
Term
Forward discount
Definition
A condition under which the forward rate of one currency relative to another currency is higher than the spot rate
Term
Forward premium
Definition
A condition under which the forward rate of one currency relative to another currency is lower than the spot rate
Term
Currency swap
Definition
A currency exchange transaction between two firms in which one currency is converted into another in Time 1, with an agreement to revert it back to the orginal currency at specific Time 2 in the future
Term
Offer rate
Definition
The price offered to sell a currency
Term
Bid rate
Definition
The price offered to buy a currency
Term
Spread
Definition
The difference between the offered price and the bid price
Term
Counter party risk
Definition
The risk of a business partner not being able to fulfil a contract
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