Upgrade to remove ads
FIN 407 Week 3
Terms in this set (74)
how many countries does the eurozone consist of?
T/F Each country in the world has their own currency
false...exception is the eurozone
what consists of 19 European countries and adopted the euro as their currency
what allows for the exchange of one currency for another?
the foreign exchange market
what is used for both business and individual use?
the foreign exchange market
specifies the rate at which one currency can be exchanged for another
what determines how many dollars an MNC will need to pay for supplies that are invoiced in foreign currency
exchange rates of foreign currencies
each currency was convertible into gold at a specified rate
1914 world war 1 began and what was suspended
the gold standard
called for fixed exchange rates between currencies to be maintained the the respective local central back to maintain the value within 1%
Bretton woods agreement
Bretton woods agreement
the U.S dollar's value was devalued relative to the other major currencies and exchange rates were also allowed to fluctuate by 2.25% in either direction from the newly set rates
widely traded currencies were allowed to fluctuate in accordance with market forces
floating exchange rate system
the telecommunications network where companies normally exchange one currency for another
foreign exchange transactions
largest foreign exchange trading centers are in which cities?
London, New York, and tokyo
which country accounts for 33% of trading volume
which country accounts for 20% of trading volume
New York City
, Hong Kong and Tokyo increase
share as London loses out for the first time
The UK capital's share has dropped for
the first time in more than a decade, from
41% in 2013 to 37.1%.
York retained its second place with a
slight increase to 19
The three largest Asian trading hubs'
(Tokyo, Hong Kong and Singapore) share
increased to to 21% from 15%.
US currency share is almost at what percentage of the 200%
90% throughout the 2000s
the average daily reading volume in the foreign exchange market now exceeds what amount of money?
what percentage of transactions is the U.S dollar involved in?
what percentage of transactions are currencies from emerging countries involved in?
serve as intermediaries in the foreign exchange market
foreign exchange dealers
what do foreign exchange dealers include?
large commercial banks
T?F in recent years, the need for foreign exchange dealers has decreased due to the fact that transactions can be made directly through the MNCs themselves
why do some MNC still use a foreign exchange dealer?
the most common type of foreign exchange transaction
the market where immediate exchange transactions occur
the exchange rate at which one currency is traded for another in the spot market
the trading between banks occurs in what is often referred to as what?
the interbank market
what determines the amount of funds necessary for the transaction?
the exchange rate AT THE TIME
what is the commonly accepted medium of exchange in the spot market
the U.S. dollar
T/F Foreign exchange trading is conducted only during normal business
hours in a given location.
True; somewhere around the world a bank is open and ready to accommodate foreign exchange requests
When the foreign exchange market opens in the United States each morning, the opening
exchange rate quotations are based on the prevailing rates quoted by banks in London (and
other locations), where the markets have opened earlier
night trading desks
what reflects the level of trading activity
what determines the amount of liquidity?
the amount of buyers and sellers
T/F the spot market for heavily traded currencies such as the euro, the pound, and the yen are extremely liquid
T/F If a currency is illiquid, then the number of willing buyers and sellers is limited and so an
MNC may be unable to purchase or sell that currency in a timely fashion and at a
reasonable exchange rate.
A savings of $.01 per unit on an order of 1 million units
of currency is worth $10,000.
cash management services
Special relationship with the
MNC will prefer a bank that conducts the transaction promptly
and also handles any paperwork properly.
Some banks may provide forecasts of the future state of foreign
and the future value of exchange rates
Characteristics of banks that are important to customers
competitiveness of quote, special relationship with the bank, speed of execution, advice about the current market conditions and economies, forecasting advice
T/F a corporation in need of a foreign currency should not automatically choose the bank that sells that currency at the lowest price
in a bank, the bid price will be less than the ask price
the bid/ask spread
the difference between the bid and ask prices
what is meant to cover the costs associated with fulfilling requests to exchange currencies
the bid/ask spread
what generates more revenue for commercial banks, but represents a higher cost to individuals of MNCs that engage in foreign exchange transactions
a larger bid/ask spread
units of the bid/ask spread
(ask rate - bid rate)/ask rate
The bid/ask spread for retail transactions is usually in the range of 3 to 7%.
what industry has a small bid-ask spread
wholesale transactions... between .01 and .013
The spread is normally larger for illiquid currencies that are less frequently traded.
Costs of processing orders, including clearing costs and the costs of recording transactions.
Costs of maintaining an inventory of a particular currency (opportunity cost).
The more intense the competition, the smaller the spread quoted by intermediaries.
Currencies that have a large trading volume are more liquid because there are numerous
buyers and sellers at any given time.
Economic or political conditions that cause the demand for and supply of the currency to change abruptly
factors that affect the spread
order costs+, inventory costs+, competition-, Volume-, currency risk+
represents the value of a foreign currency in dollars (number of dollars per currency).
1 Euro = x dollars
1 dollar = x Euros
represents the number of units of a foreign currency per dollar.
Indirect quotation = 1 / Direct quotation
when is the indirect exchange rate of the euro declining?
when the euro is appreciating against the dollar
when is the indirect exchange rate rising?
when the euro is depreciating against the dollar
the amount of one foreign currency per unit fo another foreign currency
cross exchange rate
how are cross exchange rates determined
easily through the use of foreign exchange quotations
the relative value of any non-dollar currencies is equal to what?
the dollar value of one currency divided by the dollar value of the other
value of peso in Canadian dollars
value of peso in US$/value of C$ in US$
THIS SET IS OFTEN IN FOLDERS WITH...
Fin 407 Week 1
Fin 407 Week 2
Exam 1 FIN 407
YOU MIGHT ALSO LIKE...
Foreign Exchange CH. 11
International Finance Quizzes
Chapter 2 Definitions - FIN 4144
Econ 335 Ch 11
OTHER SETS BY THIS CREATOR
Acctg 404 lesson 1
Fin 461 Chapter 1
International Business Final
OTHER QUIZLET SETS
Biochem Exam 3 Prep
Psych Final Exam