Foreign Exchange Market Flashcards, test questions and answers
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FRL301 Ch.21 Test Bank – Flashcards 94 terms
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FRL301 Ch.21 Test Bank – Flashcards
question
Which one of the following securities is used as a means of investing in a foreign stock that otherwise could not be traded in the United States?
answer
American Depository Receipt
question
Assume that $1 is equal to ¥98 and also equal to C$1.21. Based on this, you could say that C$1 is equal to: C$1(¥98/C$1.21) = ¥80.99. The exchange rate of C$1 = ¥80.99 is referred to as the:
answer
cross-rate.
question
International bonds issued in multiple countries but denominated solely in the issuer's currency are called:
answer
Eurobonds.
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U.S. dollars deposited in a bank in Switzerland are called:
answer
Eurocurrency.
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International bonds issued in a single country and denominated in that country's currency are called:
answer
foreign bonds.
question
You would like to purchase a security that is issued by the British government. Which one of the following should you purchase?
answer
gilt
question
On Friday evening, Bank A loans Bank B Eurodollars that must be repaid the following Monday morning. Which one of the following is most likely the interest rate that will be charged on this loan?
answer
London Interbank Offer Rate
question
Party A has agreed to exchange $1 million U.S. dollars for $1.21 million Canadian dollars. What is this agreement called?
answer
swap
question
A large U.S. company has £500,000 in excess cash from its foreign operations. The company would like to exchange these funds for U.S. dollars. In one of the following markets can this exchange be arranged?
answer
foreign exchange market
question
The price of one Euro expressed in U.S. dollars is referred to as a(n):
answer
exchange rate.
question
Trader A has agreed to give 100,000 U.S. dollars to Trader B in exchange for British pounds based on today's exchange rate of $1 = £0.62. The traders agree to settle this trade within two business day. What is this exchange called?
answer
spot trade
question
George and Pat just made an agreement to exchange currencies based on today's exchange rate. Settlement will occur tomorrow. Which one of the following is the exchange rate that applies to this agreement?
answer
spot exchange rate
question
A trader has just agreed to exchange $2 million U.S. dollars for $1.55 million Euros six months from today. This exchange is an example of a:
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forward trade.
question
Mr. Black has agreed to a currency exchange with Mr. White. The parties have agreed to exchange C$12,500 for $10,000 with the exchange occurring 4 months from now. This agreed-upon exchange rate is called the:
answer
forward rate.
question
Assume that an item costs $100 in the U.S. and the exchange rate between the U.S. and Canada is: $1 = C$1.27. Which one of the following concepts supports the idea that the item that sells for $100 in the U.S. is currently selling in Canada for $127?
answer
purchasing power parity
question
The condition stating that the interest rate differential between two countries is equal to the percentage difference between the forward exchange rate and the spot exchange rate is called:
answer
interest rate parity.
question
Which one of the following states that the current forward rate is an unbiased predictor of the future spot exchange rate?
answer
unbiased forward rates
question
Which one of the following states that the expected percentage change in the exchange rate between two countries is equal to the difference in the countries' interest rates?
answer
uncovered interest parity
question
Which one of the following supports the idea that real interest rates are equal across countries?
answer
international Fisher effect
question
Which one of the following is the risk that a firm faces when it opens a facility in a foreign country, given that the exchange rate between the firm's home country and this foreign country fluctuates over time?
answer
exchange rate risk
question
The market value of the Blackwell Corporation just declined by 5 percent. Analysts believe this decrease in value was caused by recent legislation passed by Congress. Which type of risk does this illustrate?
answer
political risk
question
Where does most of the trading in Eurobonds occur?
answer
London
question
Which one of the following names matches the country where the bond is issued?
answer
Rembrandt: Netherlands
question
The LIBOR is primarily used as the basis for the rate charged on:
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Eurodollar loans in the London market.
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A basic interest rate swap generally involves trading a:
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fixed rate for a variable rate.
question
Which one of the following statements is correct concerning the foreign exchange market?
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Importers, exporters, and speculators are key players in the foreign exchange market.
question
Triangle arbitrage: I. is a profitable situation involving three separate currency exchange transactions. II. helps keep the currency market in equilibrium. III. opportunities can exist in either the spot or the forward market. IV. is based solely on differences in exchange ratios between spot and futures markets.
answer
I, II, and III only
question
Spot trades must be settled:
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within two business days.
question
Assume the euro is selling in the spot market for $1.33. Simultaneously, in the 3-month forward market the euro is selling for $1.35. Which one of the following statements correctly describes this situation?
answer
The euro is selling at a premium relative to the dollar.
question
Which one of the following formulas expresses the absolute purchasing power parity relationship between the U.S. dollar and the British pound?
answer
PUK = S0 PUS
question
Which of the following conditions are required for absolute purchasing power parity to exist? I. goods must be identical II. goods must have equal economic value III. transaction costs must be zero IV. there can be no barriers to trade
answer
I, II, III, and IV
question
Absolute purchasing power parity is most apt to exist for which one of the following items?
answer
silver
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Relative purchasing power parity:
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relates differences in inflation rates to differences in exchange rates.
question
Which one of the following formulas correctly describes the relative purchasing power parity relationship?
answer
E(St) = S0 [1 + (hFC - hUS)]t
question
Which one of the following statements is correct given the following exchange rates? Country/US$ per 1 foreign unit Fri/Thurs South Africa/0.1028/0.1023 Thailand/0.0284/0.0286
answer
The South African rand appreciated from Thursday to Friday against the U.S. dollar.
question
Which of the following variables used in the covered interest arbitrage formula are correctly defined? I. RFC: Foreign country nominal risk-free interest rate II. RUS: U.S. real risk-free interest rate III. F1: 360-day forward rate IV. S0: Current spot rate expressed in units of foreign currency per one U.S. dollar
answer
I, III, and IV only
question
Interest rate parity:
answer
eliminates covered interest arbitrage opportunities.
question
The interest rate parity approximation formula is:
answer
Ft = S0 [1 + (RFC - RUS)]t.
question
The unbiased forward rate is a:
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predictor of the future spot rate at the equivalent point in time.
question
The forward rate market is dependent upon:
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forward rates equaling the actual future spot rates on average over time.
question
Uncovered interest parity is defined as:
answer
E(St) = S0 [1 + (RFC - RUS)]t.
question
The international Fisher effect states that _____ rates are equal across countries.
answer
real
question
The home currency approach (p1):
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employs uncovered interest parity to project future exchange rates.
question
The home currency approach (p2):
answer
requires an applicable exchange rate for every time period for which there is a cash flow.
question
The foreign currency approach to capital budgeting analysis: I. is computationally easier to use than the home currency approach. II. produces the same results as the home currency approach. III. requires an exchange rate for each time period for which there is a cash flow. IV. computes the NPV of a project in both the foreign and the domestic currency.
answer
I, II, and IV only
question
Which one of the following is a suggested method of reducing a U.S. importer's short-run exposure to exchange rate risk?
answer
entering a forward exchange agreement timed to match the invoice date
question
Long-run exposure to exchange rate risk relates to:
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unexpected changes in relative economic conditions.
question
The type of exchange rate risk known as translation exposure is best described as:
answer
the problem encountered by an accountant of an international firm who is trying to record balance sheet account values.
question
Which of the following statements are correct? I. The usage of forward rates increases the short-run exposure to exchange rate risk. II. Accounting translation gains and losses are recorded in the equity section of the balance sheet. III. The long-run exchange rate risk faced by an international firm can be reduced if a firm borrows money in the foreign country where the firm has operations. IV. Unexpected changes in economic conditions are classified as short-run exposure to exchange rate risk.
answer
II and III only
question
Which one of the following types of operations would be subject to the most political risk if the operation were conducted outside of a firm's home country?
answer
military weapons manufacturing
question
How many Euros can you get for $2,100 if one euro is worth $1.2762?
answer
€1,645.51 $2,100 (€1/$1.2762) = €1,645.51
question
You are planning a trip to Australia. Your hotel will cost you A$145 per night for seven nights. You expect to spend another A$2,800 for meals, tours, souvenirs, and so forth. How much will this trip cost you in U.S. dollars given the following exchange rates? Country: Australia US $ Equivalent: 0.6707 Currency per US$: 1.4910
answer
$2,559 [(A$145 7) + A$2,800] ($1/A$1.4910) = $2,559
question
You want to import $147,000 worth of rugs from India. How many rupees will you need to pay for this purchase if one rupee is worth $0.0202?
answer
Rs 7,277,228 $147,000 (Rs 1/$0.0202) = Rs 7,277,228
question
Currently, $1 will buy C$1.2103 while $1.2762 will buy €1. What is the exchange rate between the Canadian dollar and the euro?
answer
C$1.5446 = €1 (C$1.2103/$1) ($1.2762/€1) = C$1.5446/€1
question
Assume that ¥98.48 equal $1. Also assume that SKr7.7274 equal $1. How many Japanese yen can you acquire in exchange for 3,000 Swedish krone?
answer
¥38,233 SKr3,000 ($1/SKr7.7274) (¥98.48/$1) = ¥38,233
question
You just returned from some extensive traveling throughout the Americas. You started your trip with $20,000 in your pocket. You spent 3.4 million pesos while in Chile and 16,500 bolivares in Venezuela. Then on the way home, you spent 47,500 pesos in Mexico. How many dollars did you have left by the time you returned to the U.S. given the following exchange rates? (Note: Multiple symbols are used to designate various currencies. For example, the U.S. dollar is notated as "$" or as "USD".) Country/US$ Equiv./Currency per US$ Chile/?/668.0001 Mexico/0.0777/? Venezuela/?/2.1473
answer
3,535 USD 20,000USD - [3.4mCLP (1USD/668.0001CLP)] - [16,500 VEF (1USD/2.1473VEF)] - [47,500MXN (0.0777USD/1MXN) = 3,535USD
question
You have 100 British pounds. A friend of yours is willing to exchange 180 Canadian dollars for your 100 British pounds. What will be your profit or loss if you accept your friend's offer, given the following exchange rates? Country/Equiv./Currency per US$ Canada/?/1.2103 UK/1.16100/?
answer
£7.63 loss [£100 (C$180/£100) ($1/C$1.2103) (£1/$1.6100)] - £100 = -£7.63 = £7.63 loss
question
Assume you can buy 52 British pounds with 100 Canadian dollars. How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S. dollars? Country/Equiv/Curr. per USD Canada/?/1,2103 UK/?/0.6211
answer
$1.33 [$100 (C$1.2103/$1) (£52/C$100) ($1/£0.6211)] - $100 = $1.33 profit
question
Today, you can exchange $1 for £0.6211. Last week, £1 was worth $1.6104. How much profit or loss would you now have if you had converted £100 into dollars last week?
answer
profit of ₤0.02 [£100 ($1.6104/£1) (£0.6211/$1)] - £100 = £0.02
question
Today, you can get either 121 Canadian dollars or 1,288 Mexican pesos for 100 U.S. dollars. Last year, 100 U.S. dollars was worth 115 Canadian dollars or 1,291 Mexican pesos. Which one of the following statements is correct given this information?
answer
$100 converted into Canadian dollars last year would now be worth $95.05. $100 (C$115/$100) ($100/C$121) = $95.05 $100 (Ps1,291/$100) ($100/Ps1,288) = $100.23
question
The camera you want to buy costs $289 in the U.S. How much will the identical camera cost in Canada if the exchange rate is C$1 = $0.8262? Assume absolute purchasing power parity exists.
answer
$349.79 $289 (C$1/$0.8262) = C$349.79
question
A new coat costs 3,900 Russian rubles. How much will the identical coat cost in Euros if absolute purchasing power parity exists and the following exchange rates apply? Country/Equiv/C per USD Russia/?/27.0520 Euro/1.2762/?
answer
€112.97 Ru3,900 ($1/Ru27.0520) (€1/$1.2762) = €112.97
question
Assume that $1 can buy you either ¥98.48 or £0.6211. If a TV in London costs £990, what will that identical TV cost in Tokyo if absolute purchasing power parity exists?
answer
¥156,972 £990 ($1/£0.6211) (¥98.48/$1) = ¥156,972
question
In the spot market, $1 is currently equal to A$1.4910. Assume the expected inflation rate in Australia is 3.5 percent and in the U.S. 4.0 percent. What is the expected exchange rate one year from now if relative purchasing power parity exists?
answer
A$1.4835 E(S1) = A$1.4910 [1 + (0.035 - 0.04)]1 = A$1.4835
question
In the spot market, $1 is currently equal to £0.6211. Assume the expected inflation rate in the U.K. is 4.2 percent while it is 3.4 percent in the U.S. What is the expected exchange rate one year from now if relative purchasing power parity exists?
answer
£0.6261 E(S1) = £0.6211 [1 + (0.042 - 0.034]1 = £0.6261
question
In the spot market, $1 is currently equal to £0.6211. Assume the expected inflation rate in the U.K. is 2.6 percent while it is 4.3 percent in the U.S. What is the expected exchange rate four years from now if relative purchasing power parity exists?
answer
£0.5799 E(S4) = £0.6211 [1 + (0.026 - 0.043)]4 = £0.5799
question
Assume the current spot rate is C$1.2103 and the one-year forward rate is C$1.1952. The nominal risk-free rate in Canada is 3 percent while it is 4 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.
answer
$0.003 Arbitrage profit = [$1 (C$1.2103/$1) 1.03 ($1/C$1.1952)] - ($1 1.04) = $0.003
question
Assume the current spot rate is C$1.1875 and the one-year forward rate is C$1.1724. The nominal risk-free rate in Canada is 4 percent while it is 3 percent in the U.S. Using covered interest arbitrage you can earn an extra _____ profit over that which you would earn if you invested $1 in the U.S.
answer
$0.023 Arbitrage profit = [$1 (C$1.1875/$1) 1.04 ($1/C$1.1724)] - ($1 1.03) = $0.023
question
Assume the spot rate for the Japanese yen currently is ¥98.48 per $1 and the one-year forward rate is ¥97.62 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?
answer
3.37 percent (¥97.62 - ¥98.48)/¥98.48 = 0.025 - RUS; RUS = 3.37 percent
question
Assume the spot rate for the British pound currently is £0.6211 per $1. Also assume the one-year forward rate is £0.6347 per $1. A risk-free asset in the U.S. is currently earning 3.4 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free British security?
answer
5.66 percent (£0.6347/£0.6211) = [(1 + RFC)/1.034]; RFC = 5.66 percent
question
A risk-free asset in the U.S. is currently yielding 3 percent while a Canadian risk-free asset is yielding 2 percent. Assume the current spot rate is C$1.2103. What is the approximate three-year forward rate if interest rate parity holds?
answer
C$1.1744 F3 = C$1.2103 [1 + (0.02 - 0.03)]3 = C$1.1744
question
Assume the spot rate on the Canadian dollar is C$1.1847. The risk-free nominal rate in the U.S. is 5 percent while it is only 4 percent in Canada. What one-year forward rate will create interest rate parity?
answer
C$1.1734 F1/C$1.1847 = 1.04/1.05; F1 = C$1.1734
question
Assume the spot rate on the Canadian dollar is C$0.9872. The risk-free nominal rate in the U.S. is 5.4 percent while it is only 3.8 percent in Canada. Which one of the following four-year forward rates best establishes the approximate interest rate parity condition?
answer
C$0.9255 F4 = C$0.9872 [1 + (0.038 - 0.054)]4 = C$0.9255
question
You are considering a project in Poland which has an initial cost of 275,000PLN. The project is expected to return a one-time payment of 390,000PLN four years from now. The risk-free rate of return is 4.5 percent in the U.S. and 3 percent in Poland. The inflation rate is 4 percent in the U.S. and 2 percent in Poland. Currently, you can buy 277PLN for 100USD. How much will the payment of 390,000PLN be worth in U.S. dollars four years from now?
answer
$149,568 E(S4) = (277PLN/100USD) [1 + (0.03 - 0.045)]4 = 2.607502245PLN Payment = 390,000PLN ($1/2.607502245PLN) = $149,568
question
You are expecting a payment of 480,000PLN three years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Poland. The inflation rate is 2.5percent in the U.S. and 3 percent in Poland. Currently, you can buy 277PLN for 100USD. How much will the payment three years from now be worth in U.S. dollars?
answer
$168,189 E(S3) = (277PLN/100USD) [1 + (0.04 - 0.03)]3 = 2.85393377PLN 480,000PLN ($1/2.85393377PLN) = $168,189
question
You are expecting a payment of C$100,000 four years from now. The risk-free rate of return is 3.8 percent in the U.S. and 4.1 percent in Canada. The inflation rate is 2 percent in the U.S. and 3 percent in Canada. Suppose the current exchange rate is C$1 = $0.8273. How much will the payment four years from now be worth in U.S. dollars?
answer
$81,745 E(S4) = (C$1/$0.8273) [1 + (0.041 - 0.038)]4 = C$1.223321779 C$100,000 ($1/C$1.223321779) = $81,745
question
Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.6869. The expected inflation rate in Norway is 6 percent and in the U.S. it is 3.5 percent. A risk-free asset in the U.S. is yielding 4 percent. What risk-free rate of return should you expect on a Norwegian security?
answer
6.5 percent 0.04 - 0.035 = RFC - 0.06; RFC = 6.5 percent
question
Suppose the current spot rate for the Norwegian kroner is $1 = NKr6.7119. The expected inflation rate in Norway is 4 percent and in the U.S. 3 percent. A risk-free asset in the U.S. is yielding 4.5 percent. What approximate real rate of return should you expect on a risk-free Norwegian security?
answer
1.5 percent Approximate real rateN = Approximate real rateU.S. = 0.045 - 0.03 = 1.5 percent
question
The expected inflation rate in Finland is 2.8 percent while it is 3.7 percent in the U.S. A risk-free asset in the U.S. is yielding 4.9 percent. What approximate real rate of return should you expect on a risk-free Finnish security?
answer
1.2 percent Approximate real rateF = Approximate real rateU.S = 0.049 - 0.037 = 1.2 percent
question
You want to invest in a project in Canada. The project has an initial cost of C$2.2 million and is expected to produce cash inflows of C$900,000 a year for 3 years. The project will be worthless after the first 3 years. The expected inflation rate in Canada is 4 percent while it is only 3 percent in the U.S. The applicable interest rate for the project in Canada is 13 percent. The current spot rate is C$1 = $0.8158. What is the net present value of this project in Canadian dollars?
answer
-C$74,963 NPV= C$2.2m + C$900000 x (1-[(1/[1.13^3])/0.13]= C$74963
question
You want to invest in a riskless project in Sweden. The project has an initial cost of SKr4.1million and is expected to produce cash inflows of SKr1.75 million a year for three years. The project will be worthless after three years. The expected inflation rate in Sweden is 3.2 percent while it is 4.3 percent in the U.S. A risk-free security is paying 5.5 percent in the U.S. The current spot rate is $1 = SKr7.7274. What is the net present value of this project in Swedish kroner? Assume the international Fisher effect applies.
answer
SKr719,774 0.055 - 0.043 = RFC - 0.032; RFC = 0.044 Compute NPV
question
You are analyzing a project with an initial cost of £48,000. The project is expected to return £11,000 the first year, £36,000 the second year and £38,000 the third and final year. There is no salvage value. The current spot rate is £0.6211. The nominal return relevant to the project is 12 percent in the U.S. The nominal risk-free rate in the U.S. is 4 percent while it is 5 percent in the U.K. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?
answer
$25,938 E(S1) = 0.6211 [1 + (0.05 - 0.04)]1 = 0.627311 E(S2) = 0.6211 [1 + (0.05 - 0.04)]2 = 0.63358411 E(S3) = 0.6211 [1 + (0.05 - 0.04)]3 = 0.639919951 CF0 = -£48,000 ($1/£0.6211) = -$77,282.24 CO1 = £11,000 ($1/£0.627311) = $17,535.16 CO2 = £36,000 ($1/£0.63358411) = $56,819.61 CO3 = £38,000 ($1/£0.639919951) = $59,382.43 NPV = -$77,282.24 + ($17,535.16/1.121) + ($56,819.61/1.122) + ($59,382.43/1.123) = -$77,282.24 + $15,656.39 + $45,296.25 + $42,267.24 = $25,938
question
You are analyzing a project with an initial cost of £130,000. The project is expected to return £20,000 the first year, £50,000 the second year and £100,000 the third and final year. There is no salvage value. The current spot rate is £0.6211. The nominal risk-free return is 5.5 percent in the U.K. and 6 percent in the U.S. The return relevant to the project is 14 percent in the U.S. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?
answer
-$8,030 E(S1) = 0.6211 [1 + (0.055 - 0.06)]1 = 0.6179945 E(S2) = 0.6211 [1 + (0.055 - 0.06)]2 = 0.614904528 E(S3) = 0.6211 [1 + (0.055 - 0.06)]3 = 0.611830005 CF0 = -£130,000 ($1/£0.6211) = -$209,306.07 CO1 = £20,000 ($1/£0.6179945) = $32,362.75 CO2 = £50,000 ($1/£0.614904528) = $81,313.44 CO3 = £100,000 ($1/£0.611830005) = $163,444.09 NPV = -$209,306.07 + ($32,362.75/1.141) + ($81,313.44/1.142) + ($163,444.09/1.143) = -$209,306.07 + $28,388.38 + $62,568.05 + $110,320.11 = -$8,030
question
Based on the information below, what is the cross-rate for Australian dollars in terms of Swiss francs? Currency/USD Equiv Australia dollar/0.7002 Switzerland franc/0.8008
answer
0.8744 Cross-rate = 0.7002/0.8008 = 0.8744
question
Suppose the spot exchange rate for the Canadian dollar is C$1.28 and the six-month forward rate is C$1.33. The U.S. dollar is selling at a _____ relative to the Canadian dollar and the U.S. dollar is expected to _____ relative to the Canadian dollar.
answer
premium; appreciate The U.S. dollar is selling at a premium because it is more expensive in the forward market than in the spot market. The U.S. dollar is expected to appreciate in value relative to the Canadian dollar because the U.S. dollar is worth more Canadian dollars in the future than it is today.
question
Based on the following information, the value of the U.S. dollar will _____ with respect to the yen and will _____ with respect to the Canadian dollar. Cur./Cur. per USD Japan yen/115.77 6-months forward/112.80 Canada dollar/1.1379 3-months forward/1.1339
answer
depreciate; depreciate The U.S. dollar will depreciate against both the yen and the Canadian dollar because it will take less of either currency to buy one U.S. dollar in the future as compared to today.
question
Suppose the Japanese yen exchange rate is ¥114 = $1, and the United Kingdom pound exchange rate is £1 = $1.83. Also suppose the cross-rate is ¥191 = £1. What is the arbitrage profit per one U.S. dollar?
answer
$0.0923 $1 = ¥114 ¥114 (£1/¥191) = £0.596859 £0.596859 ($1.83/£1) = $1.0923 Profit = $1.0923 - $1 = $0.0923
question
Suppose the exchange rates are as follows: Cur./Cur. per USD UK pound/0.5383 6-months forward/0.5363 Assume interest rate parity holds and the current six-month risk-free rate in the United States is 3.1 percent. What must the six-month risk-free rate be in Great Britain?
answer
2.73 percent RFC = (£0.5363 - £0.5383)/£0.5383 + 0.31 = 2.73 percent
question
Suppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.5803S$/US$. You have just placed an order for 30,000 motherboards at a cost to you of 170.90 Singapore dollars each. You will pay for the shipment when it arrives in 120 days. You can sell the motherboards for $148 each. What will your profit be if the exchange rate goes up by 8 percent over the next 120 days?
answer
$1,435,999 Profit = 30,000 {$148 - [(S$170.90) ($1/(S$1.5803 1.08))]} = $1,435,999
question
Suppose the spot and six-month forward rates on the Norwegian krone are Kr6.36 and Kr6.56, respectively. The annual risk-free rate in the United States is 5 percent, and the annual risk-free rate in Norway is 7 percent. What would the six-month forward rate have to be on the Norwegian krone to prevent arbitrage?
answer
Kr6.4233 F180 = (Kr6.36)[1 + (0.07 - 0.05)]1/2 = Kr6.4233
question
You observe that the inflation rate in the United States is 3.5 percent per year and that T-bills currently yield 3.8 percent annually. What do you estimate the inflation rate to be in Australia, if short-term Australian government securities yield 4.5 percent per year?
answer
4.20 percent RUS - hUs = RFC - hFC 0.038 - 0.035 = 0.045 - hFC; hFC = 4.20 percent
question
Suppose the spot and three-month forward rates for the yen are ¥128.79 and ¥133.85, respectively. What is the approximate annual percent difference between the inflation rate in the U.S. and in Japan?
answer
16.67 percent hUS - hJAP (¥133.85 - ¥128.79)/¥128.79 = 0.39289 Approximate inflation difference = (1 + 0.039289)4 - 1 = 16.67 percent
question
Assume the spot exchange rate for the Hungarian forint is HUF 215. Also assume the inflation rate in the United States is 4 percent per year while it is 9.5 percent in Hungary. What is the expected exchange rate 5 years from now?
answer
281 F5 = 215[1 + (0.095 - 0.04)]5 = 281
question
Lakonishok Equipment has an investment opportunity in Europe. The project costs €12 million and is expected to produce cash flows of €2.7 million in year 1, €3 million in year 2, and €2.8 million in year 3. The current spot exchange rate is $1.3/€. The current risk-free rate in the United States is 5 percent, compared to that in Europe of 3.5 percent. The appropriate discount rate for the project is estimated to be 18 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €6.5 million. What is the NPV of the project?
answer
-$2,016,686 E(S1) = (1.05/1.035)1 ($1.3/€) = $1.31884058/€ E(S2) = (1.05/1.035)2 ($1.3/€) = $1.337954211/€ E(S1) = (1.05/1.035)3 ($1.3/€) = $1.357344852/€ Year 0 cash flow = €-12,000,000 ($1.3/€) = -$15,600,000 Year 1 cash flow = €2,700,000 ($1.31884058/€) = $3,560,869.57 Year 2 cash flow = €3,000,000 ($1.337954211/€) = $4,013,862.63 Year 3 cash flow = €2,800,000 + €6,500,000) ($1.357344852/€) = $12,623,307.12 NPV = -$15,600,000 + ($3,560,869.57/1.18) + ($4,013,862.63/1.182) + ($12,623,307.12/1.183) = -$2,016,686
AP Statistics
Elementary Statistics
Foreign Exchange Market
Grade Point Average
Marketing
Money Market Mutual Funds
Public Company Accounting Oversight Board
Digital Marketing – Chapter 9 – Flashcards 18 terms
18 terms
Preview
Digital Marketing – Chapter 9 – Flashcards
question
-Consumer's preferred method of receiving commercial messages from companies -Effective email marketing one of the highest ROI activities a company can undertake
answer
Email Messages
question
1) List building [obtain/cultivate a list of email addresses w/ customer permission] 2) Create email content [optimize content to maximize customer response & ROI]
answer
Company Email Marketing Action Steps
question
First step in an email marketing strategy is to capture email addresses -Use the most ethical emil capture techniques in the companies best interest so company emails won't be blacklisted by spam filters -One retailer have perfect opportunity to capture emails when someone makes a purchase -Having the opt-in box automatically clicked to receive emails can result in customers receiving company emails when they never originally signed up to receive them -Can cause these emails to directly go to spam (especially if its a smaller entity) -Better to have user click box themselves *Describe benefits of receiving emails -Customers need to know that they will receive something of value when they sign up for regular emails. -Create incentives for customers to sign up [free e-book,online webinar, online contest/giveaway, collect emails at trade shows/events, social sharing buttons] -Not recommended to purchase email lists for any business. *Key decision- whether to capture supplemental information -Most companies us a 3rd-party email platform to collect & store email addresses, create & distribute emails, segmenting email list, test email varieties, report performance
answer
Email List Capture
question
-Content creation depends on business model of the sending company
answer
Create Email Content
question
Online Retail: -Goal is to generate additional purchases -Send discounts/promotions -New product lines -recommended products based on past purchases Lead Generation: -Send regular emails to maintain long-term relationship with customers -Increase current customers' satisfaction & maintain relationships w/ past clients Search Engines: -Regular emails to customers keep search engine top-of-mind, more likely to use it in future Online Media: -Daily email about sites top content to encourage regular website visits Online B2B Services: -Useful content about best practices w/in industry -Establish company as market leader in minds of potential customers
answer
Content Types
question
How often?: "As often as it can create valuable content" -Small B2B service company: less than 1 email per week -Large company: send emails daily What time?: "Whenever customer response will be highest" -Small B2B service company: business hours -Online retailer: early evening *Test by sending emails out at various times of the day and observing when response rates are highest
answer
Email Timing
question
-Past purchases -Past email response -Customer preferences -Demographics -Location -Device
answer
Segmentation
question
Transactional Emails: -retailer sends email about transaction when customer didn't sign up for email list Triggered Emails: -abandoned cart emails Onboarding Emails: -welcome email to someone who just signed up to receive emails -may include some offer
answer
Other Email Types
question
-Best subject lines are accurate and informative. -Should accurately describe content.
answer
Subject line
question
Page should correspond with message Ex: 20% off women's sweaters should lead to women's sweaters page on site with products that have the discount
answer
Landing Pages
question
-Open Rate -CTR -Conversion rate -Average Order Value -List Churn
answer
Measuring Success
question
-Crucial for avoiding spam filters and for overall profitability -Measures quality of the subject line -20% average
answer
Open Rate
question
Measures quality of content and % of readers who click on a part of the email
answer
CTR
question
track success of email campaign or individual email blast
answer
Average Order Value
question
Measures how frequently emails are causing people to unsubscribe
answer
List Churn
question
CAN-SPAM -Clean email list -Use double opt-in -Provide unsubscribe button -Comply immediately w/unsubscribe requests
answer
Avoiding Spam Filters
question
Companies efforts to manage its interactions w/ current & potential customers 1) Marketing -generate leads -nurture leads 2) Sales -Qualify leads -Convert leads 3) Customer Support -Train customers -Upsell cross-sell
answer
Customer Relationship Management
question
software that allows a company to automate and optimize digital marketing efforts across multiple channels
answer
Marketing Automation
Federal Open Market Committee
Finance
Financial Accounting
Foreign Exchange Market
Short Term Investment
Finance 2 – Flashcards 33 terms
33 terms
Preview
Finance 2 – Flashcards
question
short term debt
answer
debt instruments with original maturities of one year or less.
question
income stocks
answer
stocks of firms that traditionally pay large, relatively constant dividends each year
question
after tax cost of debt
answer
the relevant cost of new debt, taking into account the tax deductibility of interest
question
weighted average cost of capital
answer
a weighed average of the component costs of debt, preferred stock, and common equity
question
working capital
answer
a firms investment in short term assets; cash, marketable securities, inventory, and accounts receivable.
question
relaxed fat cat current asset investment policy
answer
when large amounts of cash and marketable securities and inventories are carried and under which sales are stimulated by a liberal credit policy that results in a high level of receivables
question
maturity matching approach
answer
a financing policy that matches asset and liability maturities. This would be considered a moderate current asset financing policy.
question
credit policy
answer
a set of decisions that includes a firms credit standards, terms, methods used to collect credit accounts, and credit monitoring procedures.
question
days sales outstanding
answer
how long it takes to collect accounts receivable
question
aging schedule
answer
a report showing how long accounts receivables have been outstanding.
question
work in process
answer
inventory in various stages of completion. Process of raw materials to finished goods.
question
trade credit
answer
the credit created when one firm buys on credit from another firm. accounts payable
question
blanket liens
answer
a lien on all inventory. gives the lending institution a legal claim against the borrowers entire inventory.
question
sales forecast
answer
a forecast of a firms unit and dollar sales for some future peroid
question
operating leverage
answer
how much assets your using to leverage your business
question
lumpy assets
answer
assets that cannot be acquired in small increments, but in large amounts
question
marketable securities
answer
securities that can be sold on short notice without loss of principal or investment
question
fixed costs
answer
costs that remain unchanged in total amount over a wide range of production levels
question
cash budget
answer
a schedule showing cash receipts, cash disbursements, and cash balances for a firm over a specified peroid of time.
question
variable costs
answer
costs that are fixed per unit and change in total amount as production volume changes
question
term loan
answer
a contract negotiated directly with a bank in which the borrower agrees to make a series of interest and principal payments on specific dates to the bank
question
junk bonds
answer
high-risk, high-yield bonds used to finance mergers, leveraged buyouts and failing companies
question
dividends and retained earnings
answer
the net income that a firm earns can either be paid out to shareholders as dividends or can be reinvested in the company as retained earnings
question
how do shareholders exert control of the management of a firm?
answer
vote annually on board of directors
question
identify and explain types of cash flows used in making a decision to accept or reject a project
answer
relevant cost, after tax cost, incremental cost, direct cost, opportunity cost
question
what is included in the calculation of the initial investment outlay of a project?
answer
shipping and installation costs associated with the purchase of an asset
question
what is the formula for net working capital
answer
current assets- current liabilities
question
what are 4 reasons a business holds cash balances?
answer
emergency for rainy days and low sales, transactions with another company, speculative cash for purchasing new assets, and compansating for bills.
question
describe a promissory note
answer
a fany IOU. A promise to pay a balance owed.
question
describe in detail factoring and pledging of accounts receivable.
answer
Factoring= selling accounts receivable Pledging= using as collateral on a loan
question
define operating breakeven point
answer
operating income is 0. enough to cover cost
question
describe 5 major points of the cash conversion cycle
answer
order and receive materials, add labour and finish goods, sales, pay accounts payable and pay wages, and collect accounts receivable.
question
ways to eliminate any problems that slow the cash conversion cycle down
answer
speed up assembly line, hold off on paying accounts payable, and decreasing price will increase sales
Foreign Exchange Market
International Monetary Fund
International Organizations
IB Set 2 – Flashcards 100 terms
100 terms
Preview
IB Set 2 – Flashcards
question
Which of the following is a function of World Bank?
answer
Lending money to governments for development
question
In a letter of credit transaction, the importer secures the letter of credit ____.
answer
before product shipment
question
Under a currency board system, ____.
answer
government lacks the ability to set interest rates
question
Dynamic capabilities describe skills that _____.
answer
become more valuable over time through learning
question
A(n) ____ distribution channel is one that is difficult for outsiders to access.
answer
exclusive
question
_____ are international bonds, normally underwritten by an international syndicate of banks and placed in countries other than the one in whose currency the bond is denominated
answer
eurobonds
question
Which of the following is an argument favoring centralization?
answer
It can avoid the duplication of activities.
question
Bringing managers together in one location for extended periods and rotating them through different jobs in several countries is a part of
answer
management development programs
question
According to Levitt, which of the following statements is true?
answer
Technology drives the world toward a converging commonality.
question
Which of the following statements is NOT true?
answer
The price a firm charges for a good or service is typically more than the value the customer places on that good or service
question
The emphasis on local responsiveness in firms pursuing a localization strategy creates strong pressures for:
answer
decentralizing operating decisions to foreign subsidiaries.
question
The benefits of making all or part of a product in-house seem to be greatest when the firm
answer
has highly specialized assets
question
The agreement reached at Bretton Woods established ____.
answer
International Monetary Fund
question
A firm that operates with matrix-type structures in which both product divisions and geographic areas have significant influence would use which of the following strategies?
answer
transnational strategy
question
Which of the following is an argument favoring decentralization?
answer
It permits greater flexibility.
question
Global learning based on the multidirectional transfer of skills between subsidiaries and the corporate center is a central feature of a firm pursuing a(n) _____ strategy.
answer
transnational
question
The price a firm charges for a good or service is typically less than the value placed on that good or service by the customer. This is because:
answer
the customer captures some of that value in the form of a consumer surplus.
question
Which of the following statements is true regarding management development?
answer
Management development facilitates the creation of an informal network for sharing knowledge within the multinational enterprise
question
The cost of capital is the ____.
answer
price of borrowing money
question
In a seminal study, R. L. Tung found that for American multinationals, the biggest impediment to expatriate success was:
answer
the inability of the spouse to adjust.
question
Which of the following is a hidden cost associated with basing production in a foreign location?
answer
High employee turnover
question
The continuing persistence of ____ differences between nations acts as a major brake on any trend toward global consumer tastes and preferences
answer
cultural and economic
question
Which of the following is a factor that transforms a low-cost location to a high-cost location?
answer
Appreciation of local currency
question
_____ is viewed as the most restrictive countertrade arrangement and is primarily used for one-time-only deals in transactions with trading partners who are not creditworthy or trustworthy.
answer
Barter
question
There is low interdependence, performance ambiguity, and costs of control in firms pursuing a(n):
answer
localization strategy.
question
Which of the following is an advantage of countertrade?
answer
It is an effective way of doing business with developing nations.
question
When using the Euromarkets, companies ____.
answer
pay less for the loans
question
A Japanese firm prefers expatriate Japanese managers to head its foreign operations because these managers have been socialized into the firm while employed in Japan. This indicates that the firm
answer
follows an ethnocentric staffing policy to maintain a unified corporate culture.
question
_____ makes it difficult to evaluate the performance of expatriate managers objectively.
answer
Unintentional bias
question
How has the adoption of just-in-time inventory systems, computer-aided design, and computer-aided manufacturing impact firms' associations with suppliers?
answer
It has increased pressures to establish long-term relationships with suppliers.
question
Banks offer higher interest rates on Eurocurrency deposits than on deposits made in the home currency because Eurocurrency deposits ____
answer
lack government regulations
question
A _____ is simply an order written by an exporter instructing an importer, or an importer's agent, to pay a specified amount of money at a specified time.
answer
draft
question
Which of the following is a factor that makes Eurobonds more attractive than most major domestic bonds?
answer
Favorable tax status
question
Other things being equal, the rate of new-product development seems to be greater in countries where:
answer
consumers are affluent.
question
Which of the following makes being dependent on one location particularly risky?
answer
Floating exchange rates
question
_____ refers to giving a person in each subunit responsibility for coordinating with another subunit on a regular basis.
answer
Liaison roles
question
A firm that is facing both strong cost pressures and strong pressures for local responsiveness should follow a(n) _____ strategy.
answer
transnational
question
Which of the following statements about retail systems is true?
answer
One factor contributing to greater retail concentration is an increase in car ownership.
question
What will happen if a country increases its money supply rapidly under fixed exchange rate regime?
answer
Trade deficit would widen in that country.
question
Which of the following observations is true of the Bretton Woods agreement?
answer
All countries agreed to fix the value of their currency in terms of gold under the agreement
question
What is the long-term goal of international trade secretariats (ITSs)?
answer
To be able to bargain transnationally with multinational firms
question
Which of the following arguments strengthen the idea of floating exchange rates?
answer
Trade deficits can be corrected through changes in exchange rates.
question
If a high-tech firm sets up operations in a foreign country to profit from a core competency in technological know-how, which of the following entry strategies is best?
answer
Wholly owned subsidiaries
question
Consumers in highly developed countries value ____ as compared to their counterparts in less developed nations.
answer
product attributes
question
Which of the following is a drawback of the polycentric approach to staffing?
answer
Host-country nationals have limited opportunities for advancement beyond senior positions in their subsidiary.
question
Eurobonds are ____.
answer
normally underwritten by an international syndicate of banks
question
When a company charges whatever the market will bear, the company is using:
answer
price discrimination.
question
Management development programs aim to:
answer
build a unifying corporate culture.
question
A consumer surplus can be best described as:
answer
value for the money.
question
The main factor that makes the Eurocurrency market attractive to both depositors and borrowers is that it ____.
answer
lacks government regulation
question
The World Bank was established at the at Bretton Woods conference to ____.
answer
promote general economic development
question
Organizational structure means all of the following, EXCEPT:
answer
the manner in which decisions are made and work is performed by individuals.
question
The norms and values systems that are shared among the employees of a company are referred to as:
answer
organizational culture.
question
Economies that arise from performing a value creation activity in the optimal place for that activity are referred to as:
answer
location economies.
question
_____ denotes a whole range of barter-like agreements and its principle is to trade goods and services for other goods and services when they cannot be traded for money
answer
Countertrade
question
_____ separated national equity markets from each other historically.
answer
Substantial regulatory barriers
question
Through its _____ program, the SBA oversees about 850 volunteers with international trade experience to provide one-on-one counseling to active and new-to-export businesses.
answer
SCORE
question
United States had large and growing trade deficit between 1980 and 1985. Despite this, the value of U.S. dollar rose during this period. Which of the following is a factor that caused this occurrence?
answer
United States attracted heavy inflows of capital from foreign investors during this period.
question
Managing an alliance successfully requires building interpersonal relationships between the firms' managers. This is sometimes referred to as ____.
answer
relational capital
question
Which of the following is true regarding approaches to labor relations?
answer
Many firms are now using the threat to move production to another country in their negotiations with unions.
question
Which of the following statements is true of Web-based EDI systems?
answer
Web-based systems are much easier to install compared to proprietary solutions.
question
An important drawback of a purely domestic capital market is that the ____.
answer
cost of capital tends to be higher than it is in a global market
question
____ is the direct exchange of goods and/or services between two parties without a cash transaction and is the simplest arrangement
answer
barter
question
An arrangement whereby a firm grants the right of intangible property to another entity for a specified time period in exchange for royalties is a(n) _____ agreement.
answer
licensing
question
When value of U.S. dollars goes down, ____.
answer
foreign borrowers will garner benefits
question
Which of the following is a disadvantage of licensing?
answer
It does not give a firm the tight control over strategy that is required for realizing experience curve and location economies.
question
A firm's _____ determines where in its hierarchy the decision-making power is concentrated.
answer
vertical differentiation
question
Responding to pressure for _____ requires that a firm differentiate its product offering and marketing strategy from country to country
answer
being locally responsive
question
Which of the following is less likely to add to the pressure for a firm to be locally responsive?
answer
Switching costs for consumers
question
Which of the following is a nationwide group of international trade attorneys who provide free initial consultations to miniature businesses on export-related matters?
answer
ELAN
question
___ is a reciprocal buying agreement and occurs when a firm agrees to buy a certain amount of materials back from a country to which a sale is made.
answer
Counterpurchase
question
A dirty float refers to a situation in which ____.
answer
a country tries to hold its currency against an important reference currency without a formal pegged rate
question
Learning effects:
answer
typically disappear after a while, in spite of the complexity of the task.
question
Which of the following is a major source of the improvement in the capabilities of a foreign site?
answer
Increasing abundance of advanced factors of production in the nation where the factory is located
question
Which of the following statements about franchising is true?
answer
It is a specialized form of licensing.
question
Which of the following statements about the choice of distribution strategy is true?
answer
The longer a channel, the greater the aggregate markup, and the higher the price that consumers are charged for the final product.
question
Which of the following statements about small-scale entry is true?
answer
Small-scale entry is a way to gather information about a foreign market before deciding whether to enter on a significant scale.
question
Under a(n) _____ agreement, a firm might license some valuable intangible property to a foreign partner, but in addition to a royalty payment, the firm might also request that the foreign partner license some of its valuable know-how to the firm.
answer
cross-licensing
question
The international monetary system refers to the institutional arrangements that govern ____.
answer
exchange rates
question
Tight cross-functional integration between R&D, production, and marketing can help a company to ensure that all of the following take place except:
answer
product development projects are driven by internal needs.
question
Which of the following is a common difficulty that traders face when exporting goods or services to other countries?
answer
Exporters often face voluminous paperwork and complex formalities.
question
A(n) _____ tends to be adopted by firms that are reasonably diversified.
answer
worldwide product division structure
question
A _____ structure encourages fragmentation of the organization into highly autonomous entities.
answer
worldwide area
question
Which of the following is a problem that arises due to an international division structure?
answer
The heads of foreign subsidiaries are not given as much voice in the organization as the heads of domestic functions or divisions.
question
Which of the following arguments is in favor of floating exchange rates?
answer
Governments can restore monetary control by removing the obligation to maintain exchange rate parity
question
____ refers to the number of intermediaries between the producer (or manufacturer) and the consumer
answer
Channel length
question
The set of choices the firm offers to its targeted market is known as the ____.
answer
marketing mix
question
Which of the following is one of the four elements that constitute a firm's marketing mix?
answer
Distribution strategy
question
When an investor purchases a corporate bond, he purchases the right to receive a ____.
answer
specified fixed stream of income from the corporation
question
The means a firm chooses for delivering the product to the consumer is its ____.
answer
distribution strategy
question
Japan's great trading houses are called ____.
answer
sogo shosha
question
Which of the following will help a company hedge against currency fluctuations?
answer
Dispersing production to different geographic locations
question
___ is an alternative means of structuring an international sale when conventional means of payment are difficult, costly, or nonexistent
answer
Countertrade
question
When companies disperse different stages of the value chain to those locations around the world where perceived value is maximized or where the costs of value creation are minimized, companies create
answer
a global web of value creation activities.
question
For firms selling a product that serves universal needs, and do not face significant competition, a(n) _____ strategy makes sense.
answer
international
question
Under a _____ exchange rate regime, a country will attach the value of its currency to that of a major currency
answer
pegged
question
Moving down the experience curve:
answer
allows a firm to reduce its cost of creating value.
question
Which of the following is a major drawback of engaging in countertrade?
answer
Countertrade may involve the exchange of unusable goods.
question
Which of the following countries has a concentrated retail system?
answer
USA
question
Which strategy focuses on increasing profitability by customizing the firm's goods or services so they provide a good match to tastes and preferences in different national markets?
answer
Localization strategy
Foreign Exchange Market
Foreign Exchange Rates
International Economics
International Marketing
Monetary Economics
International Business – The Foreign Exchange Market Chapter 9 notes – Flashcards 35 terms
35 terms
Preview
International Business – The Foreign Exchange Market Chapter 9 notes – Flashcards
question
Appreciating or Depreciating currencies affect sales, survivability and or / profitability.
answer
question
Foreign Exchange Market
answer
is a market for converting the currency of one country into that of another country.
question
Exchange Rate
answer
is the rate at which one currency is converted into another
question
Without foreign exchange market, international trade and international investment on the scale that we see today would be impossible
answer
question
The foreign exchange market is the lubricant that enables companies based in countries that use different currencies to trade with each other
answer
question
One function of the foreign exchange market is to provide some insurance against the risks that arise from such volatile changes in the exchange rates, commonly referred to as foreign exchange risk.
answer
question
Foreign exchange Market serves two main functions:
answer
1. To convert the currency of one country into the currency of another. 2. Provide some insurance against foreign exchange risk
question
International Business have four main uses of foreign exchanges
answer
1. The payments a company receives for its exports. 2. Must pay a foreign company for its products or services in its country's currency. 3. Use foreign exchange markets when they have spare case that they wish to invest for short terms in money markets
question
Currency Speculation
answer
Involves the short-term movement of funds from another currency to another in hopes of profiting from shifts in exchange rates.
question
Carry trade
answer
involves borrowing in one currency where interest rates are low, and then using the proceeds to invest in another currency where interests are high.
question
Hedging
answer
The process of insuring one's business against foreign exchange risk by using forward exchanges or currency swaps.
question
Spot exchange rate
answer
rate at which a foreign exchange dealer converts one currency into another currency on a particular day
question
Spot exchanges can be tricky because if the company is hoping to pay off another in thirty days (they have to pay in the currency of the country) the exchange rate might go up, which can be problematic and may cause the company to lose more money.
answer
question
Forward exchange
answer
occurs when two parties agree to exchange currencies and execute the deal at some specific date in the future.
question
Forward Exchange Rates
answer
Are quoted for 30 days, 90 days etc
question
The Law of one price
answer
In a competitive market, free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same wprice when their price is expressed in terms of the same currency
question
Efficient Market
answer
A market which as no impediments of` the free flow of goods and services, such as trade barriers and prices reflect all available public information
question
The growth rate of a country's money supply determines its likely future inflation rate
answer
question
The Fisher effect
answer
states that a country's nominal interest rate is the sum of the required "real" rate of interest
question
Foreign Exchange risk
answer
The risk that changes in exchange rates that will hurt the profitability of a business deal
question
Currency Speculation
answer
The short term movement from one currency to another in order to profit from the shift in exchange rates
question
Carry Trade
answer
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
question
Spot exchange rates
answer
The exchange rate at which a foreign exchange dealer converts it into another country. what the exchange rate is today,
question
Forward Exchange
answer
When two parties agree to exchange currency and execute the deal at some specific date in the future. 30, 90, 120 days
question
Currency Swap
answer
Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates
question
Arbitrage
answer
The purchase of securities in one market for immediate resale in another to profit from a price discrepancy.
question
The law of one price
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.
question
Efficient Market
answer
Has few impediments to international trade and investment exist
question
Inefficient Market
answer
one in which prices do not reflect all available information
question
Fisher effect
answer
An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and nominal interest rates. The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. Therefore, real interest rates fall as inflation increases, unless nominal rates increase at the same rate as inflation. nominal interest rates in each country equal the required real rate of interest and the expected rate of inflation over the period of time for which the funds are to be lent
question
international fisher effect
answer
An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and nominal interest rates. The Fisher effect states that the real interest rate equals the nominal interest rate minus the expected inflation rate. Therefore, real interest rates fall as inflation increases, unless nominal rates increase at the same rate as inflation. on an international level.
question
Bandwagon Effect
answer
when traders move like a herd, all in the same direction and at the same time, in response to each others' perceived actions
question
Freely convertible currency
answer
When government allows residents and nonresidents to purchase freely of foreign currencies with the domestic currency
question
Non convertible Currency
answer
where non residents and residents are prohibited from converting their holding of that currency into another currency
question
Capital flight
answer
when residents of a country convert domestic currency into a foreign currency when things are not going well with the domestic country.
Balance Of Payments
Business Law
Business Management
Foreign Exchange Market
Free Trade Zone
International Marketing
Principles Of Marketing
Introduction to Business chapter 3 ; 4 Key Terms – Flashcards 22 terms
22 terms
Preview
Introduction to Business chapter 3 ; 4 Key Terms – Flashcards
question
Embargo
answer
An action imposed by the government to stop the export or import of a product completely
question
Exchange rate
answer
The value of a currency in one country compared with the value in another
question
Exports
answer
Goods and services sold to other countries
question
Imports
answer
Goods and services bought from other countries
question
Infrastructure
answer
A factor that supports international trade in industrialized countries, including a nation's transportation, communication and utility systems
question
Joint venture
answer
a unique business organized by two or more other businesses to operate for a limited time and for a specific project. It is a type of partnership.
question
Multinational company (MNC)
answer
An organization that does business in several countries. It usually consists of a home country and divisions or separate companies in one or more host countries.
question
Tariff
answer
A tax that a government places on certain imported products
question
Trade barrier
answer
Restrictions to free trade.
question
Chapter 4 starts Now
answer
Chapter 4 starts now
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Antitrust laws
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Laws that Prevent monopolies and promote competition and fairness. Other unfair business practices such as false advertising, deceptive pricing, and misleading labeling
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Business ethics
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Rules about how businesses and their employees should behave
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Code of ethics
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Set of rules for guiding the actions of employees or members of an organization
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Contract
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An agreement to exchange goods or services for something of value, usually money. (Basic part of doing business)
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Copyright
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The Protection of the creative work of authors, composers, and artists
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Ethics
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Principles of morality or rules of conduct
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Monopoly
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Exists when a business has control of the market for a product or service
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Non-renewable resource
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A natural resource that cannot be replaced when used up
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Patent
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Gives the inventor the sole right to make, use , or sell the item for 20 years
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Public utility
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An organization that supplies a service or product vital to all people including companies that provide local telephone service, water, and electricity
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social responsibility
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The duty of a business to contribute to the well-being of community
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Trademark
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A distinctive name, symbol, word, picture, or combination of these use to identify products or services
