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24 Cards in this Set
- Front
- Back
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describe the functions of the foreign exchange market
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1. convert the currency of one country to the currency of another.
2. insure against foreign exchange risk, or the adverse consequences of unpredictable changes in exchange rates |
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What is meant by spot exchange rates?
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A spot exchange rate is the rate at which a foreign exchange dealer converts one currency into another currency on a particular day.
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What is meant by future exchange rate?
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A future exchange rate is the rate at which a foreign exchange dealer converts one currency into another currency on a future planned date.
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What is the fisher effect?
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Nominal rate=real interest rate + expected rate of inflation
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bandwagon effect?
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traders moving as a herd in the same direction at the same time
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What are good predictors of long-run changes in exchange rates?
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Relative Monetary growth, relative inflation rates, nominal interest rate differentials
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Why are they poor predictors of short-run changes?
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impact of psychological factors, investor expectations, and bandwagon effects.
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Currency Convertibility
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Freely convertible-when the country's government allows both residents and non residents to purchase unlimited amounts of a foreign currency.
externally convertible-only non-residents may convert without any limitations nonconvertible-neither can convert |
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capital flight
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residents and nonresidents rush to convert their holdings of domestic currency into a foreign currency.
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countertrade
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a range of barter-like agreements by which goods and services can be traded for other goods and services.
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what is the difference between transaction, translation, and economic exposure.
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transaction-extent to which the income from individual transactions is affected by fluctuations in foreign exchange values.
translation-impact of currency exchange rate changes on the reported financial statements of a company. **concerned with the present measurement of past events. economic exposure-extent to which a firm's future international earning power is affected by changes in exchange rates. **Concerned with long run effects |
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lead strategy vs lag strategy
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lead-attempting to collect foreign currency receivables early
lag-delaying collection of foreign currency receivables |
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Role played by IMF and World Bank
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IMF-maintain order in the international monetary systems
world Bank- promote general economic development |
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fixed vs floating exchange rate
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fixed-system for which one currency rate is fixed to another
floating-currency rate is adjusted based on supply and demand |
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Case for floating exchange rate 2 main elements?
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monetary policy autonomy and automatic trade balance adjustments
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Case for fixed exchange rates? (4)
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monetary discipline, speculation, uncertainty, and the lack of connection between the trade balance and exchange rates
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benefits of global capital market?
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capital markets bring together those who want to borrow money and those who want to invest money.
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why has the global market grown so rapidly?
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advances in information technology, and deregulation by governments
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What risks are associated with the global market
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quickly shifting money,
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strategy
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actions that managers take to attain the goals of the firm.
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how can firms profit by globally expanding?
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expand the market for products, earn greater return, realize location economies by dispersing individual value creation
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Cost pressures and pressures for local responsiveness
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p. 431
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different strategies?
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global standardization strategy, localization, transnational, international
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organization architecture
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totality of a firms organization including formal organization structure, control systems, and incentives, processes, organizational culture, and people
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