The International Flow of Funds and Exchange Rates Terms -...

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The International Flow of Funds and Exchange Rates Terms 1 Hard Currencies are leading world currencies of developed industrialized countries, including the U.S. Dollar, European euro, Japanese yen, and British pound sterling. 2 Direct Quotes are prices of a foreign currency in dollars, or the number of dollars per one unit of foreign currency. 3 Premium is in the forward market, the selling of a currency at a spot rate that is more than the forward rate. 4 Dollarization is the practice of using the dollar or some foreign currency together with, or instead of, a domestic currency in a country. 5 Arbitrage is buying goods in a lower prices market and selling them in a higher priced market to make profits 6 Law of One Price is a principle stating that identical goods should sell for the same price in different countries according too slow currencies. 7 Spot Market is an exchange that trades currencies on a real-time basis for immediate delivery. 8 Discount is in the forward market, the selling of a currency at a spot rate that is less than the forward rate. 9 Trade Deficit is when merchandise imports exceed merchandise exports for a country. 10 Interest Rate Parity (IRP) is the theory stating that interest rates on bonds in different countries should be the same, as investors would buy and sell these bonds to make arbitrage profits until this condition holds. 11 Income Balance is the net of investment income from abroad and investment payments to foreigners 12 Risk Premium is the added return required by investors for risk associated with a security or asset.

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