Exchange Rate and the Firm

<p>Loss from the default or fall in credit quality of a borrower (B)</p> Signup and view all the answers

<p>Changes in currency or interest rates (D)</p> Signup and view all the answers

<p>$7.8 million (C)</p> Signup and view all the answers

<p>Business Risk (D)</p> Signup and view all the answers

<p>Low volatility and low exposure (D)</p> Signup and view all the answers

<p>A bet on an increase in value (C)</p> Signup and view all the answers

<p>Equities (A)</p> Signup and view all the answers

<p>Individuals and businesses engaging in foreign transactions (A)</p> Signup and view all the answers

<p>The price a dealer is willing to pay (D)</p> Signup and view all the answers

<p>It increases. (A)</p> Signup and view all the answers

<p>Private equity firms (C)</p> Signup and view all the answers

<p>There will be no buying or selling (D)</p> Signup and view all the answers

<p>Law of supply. (C)</p> Signup and view all the answers

<p>To exploit discrepancies in currency values. (C)</p> Signup and view all the answers

<p>The price at which a buyer can purchase an asset (A)</p> Signup and view all the answers

<p>$1.00 = ¥33.33 (D)</p> Signup and view all the answers

<p>The difference between the bid price and ask price (A)</p> Signup and view all the answers

<p>A market does not reach equilibrium. (B)</p> Signup and view all the answers

<p>Sell $ for £. (D)</p> Signup and view all the answers

<p>Auctions. (B)</p> Signup and view all the answers

<p>High uncertainty. (B)</p> Signup and view all the answers

<p>Futures contracts are traded on an exchange. (C)</p> Signup and view all the answers

<p>Mark to market with margin requirements (A)</p> Signup and view all the answers

<p>Maintenance margin (A)</p> Signup and view all the answers

<p>Futures can be traded electronically or via open-outcry. (A)</p> Signup and view all the answers

<p>Cash adjustments are made based on price fluctuations. (C)</p> Signup and view all the answers

<p>Long position (C)</p> Signup and view all the answers

<p>They are exclusively traded on the over-the-counter market. (C)</p> Signup and view all the answers

<p>A performance bond of 10% to 15% of the transaction (C)</p> Signup and view all the answers

<p>$19,688 (B)</p> Signup and view all the answers

<p>$15.625 (C)</p> Signup and view all the answers

<p>The futures account generates profits that offset some of the losses. (C)</p> Signup and view all the answers

<p>$0.10 (D)</p> Signup and view all the answers

<p>They expect the dollar to appreciate. (B)</p> Signup and view all the answers

<p>Airbus gains while Delta Airlines incurs losses since they are in a zero-sum game. (D)</p> Signup and view all the answers

<p>-$5 million (C)</p> Signup and view all the answers

<p>The total profit and loss among participants equals zero. (D)</p> Signup and view all the answers

<p>It enables firms to take advantage of comparative borrowing advantages. (A)</p> Signup and view all the answers

<p>By purchasing forward contracts to convert payments. (B)</p> Signup and view all the answers

<p>Implied forward rates may vary but should resemble an average forward rate in total over the loan term. (B)</p> Signup and view all the answers

<p>When there are market imperfections affecting debt access. (B)</p> Signup and view all the answers

<p>Using moving averages to decompose trends. (D)</p> Signup and view all the answers

<p>Three different moving averages. (B)</p> Signup and view all the answers

<p>To remove irregularities in the exchange rate data. (A)</p> Signup and view all the answers

<p>1,440 (B)</p> Signup and view all the answers

A position in a market where a trader bets on the value of an asset increasing.

A position in a market where a trader bets on the value of an asset decreasing.

A strategy to reduce risk by offsetting potential losses in one investment with gains in another.

Financial instruments derived from the value of underlying assets like currencies, stocks, or commodities.

The market where currencies are bought and sold for immediate delivery, usually within two business days.

The price at which a dealer is willing to buy a currency.

The price at which a dealer is willing to sell a currency.

The difference between the bid and ask prices in a currency exchange.

A domino-like effect where a crisis in one financial sector can trigger crises in others.

The possibility of losing money due to changes in exchange rates. For example, a company exporting goods faces currency risk if the value of their currency falls before they receive payment.

The possibility of losing money because a borrower fails to repay their debt.

The possibility of losing money due to changes in financial prices, such as currency rates, interest rates, or stock prices.

The inability to raise cash by selling assets or borrowing money to meet financial obligations.

The risk of losing money due to problems with internal processes, systems, or people.

The risk associated with uncertainty about future changes in laws, regulations, and codes.

The risk of losing money due to uncertainty about future demand for products or services.

When the supply of a good or service increases as the price goes up.

A mechanism that helps find an equilibrium price by matching buyers and sellers.

A theoretical model that explains how prices move towards an equilibrium in a market with changing supply and demand.

A situation where the exchange rates between three currencies create an opportunity to make a profit by trading them in a specific sequence.

The exchange rate between two currencies derived from their individual exchange rates with a third currency.

The price at which a currency is bought or sold immediately.

The act of profiting by exploiting discrepancies in exchange rates between different markets.

Futures contracts are standardized and traded on an exchange, while forward contracts are customized and negotiated directly between parties.

Futures contracts are more liquid than forward contracts due to standardization and the ability to be traded again.

Futures contracts utilize margin calls to ensure performance by requiring traders to deposit a portion of the contract value as collateral.

Daily settlement of gains and losses in futures contracts is referred to as 'mark-to-market'. This helps reduce default risk by reflecting price changes daily.

The buyer of a futures contract is said to have a 'long position' and benefits from price increases. The seller has a 'short position' and benefits from price decreases.

Futures contracts can be closed out (terminated) before the expiration date by entering into an offsetting transaction.

Futures contracts specify the underlying asset (e.g., commodity, currency), its amount and quality, delivery cycle, expiration date, and settlement mechanism.

Futures trading can occur through open outcry (voice and hand signals) or electronically.

The value of a futures contract changes based on the difference between the initial price and the current price of the underlying asset.

The amount of money required to open a futures position, acting as collateral to cover potential losses.

A futures contract allows you to either buy or sell the underlying asset at a pre-determined price at a future date.

A contract that gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price (strike price) on or before a specific date (expiry date).

The price at which an investor can buy or sell the underlying asset when exercising an option contract.

The date after which an option contract can no longer be exercised.

A market where participants buy and sell contracts for future delivery of assets, often used for hedging and speculation.

A financial contract where two parties agree to exchange a series of payments in one currency for payments in another currency, effectively hedging against currency fluctuations. It involves a firm taking a domestic currency loan and buying forward contracts to convert payments into known foreign currency obligations.

The implied exchange rate between two currencies for a future date. Based on the prevailing interest rates, it indicates the expected future exchange rate.

A situation where one party has a borrowing advantage in one currency while the other party has an advantage in the other currency. This motivates them to enter into a swap to benefit from lower borrowing costs.

A method of decomposing a time series data, such as an exchange rate, into a trend component and a cyclical component. This helps in understanding the underlying long-term movement and short-term fluctuations.

A method of smoothing data by calculating the average of a series of consecutive observations. Different types of moving averages are used, depending on the number of periods considered.

A statistical method used to decompose a time series into a long-term trend and a cyclical component, using a specific parameter (lambda).

Strategies based on analyzing trends and cycles in exchange rate data to identify opportunities for buying or selling currencies, anticipating future movements.

The movement of an exchange rate over time, characterized by periods of appreciation and depreciation, often reflecting economic and political factors.