Mgmt 450 Test

Mgmt 450 Test - Mgmt 450 Test#3 Chapter 8 Foreign Exchange...

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Mgmt 450 Test #3 Chapter 8 Foreign Exchange : a commodity that consists of currencies issued by countries other than one’s own. Price is set by demand and supply in the marketplace. Derived Demand : the demand for one currency is derived from foreigner’s desire to acquire goods, services and assets from that country. To buy those goods, foreigners need to buy their currency. Direct Exchange Rate (Direct Quote) : the price of the foreign currency in terms of the home currency ($.008725 per yen) Indirect exchange rate (indirect quote) : the price of the home currency in terms of the foreign currency (114.61 yen per dollar) Primary transaction currency : the u.s. dollar (89% of transactions) Wholesale market : large transactions made by banks or large commercial customers Retail market : international banks dealing with individual customers buying or selling in large and small amounts (wholesale exchange rate + premium) Commercial customers : foreign exchange is part of normal activities (import/export, pay/receive dividends, hedging risks) Speculators : deliberately assume exchange rate risks and predict changes in a currency’s market value Arbitrageurs : try to obtain riskless profits by buying and selling currency simultaneously Convertible currencies (hard currencies) : currencies that are easily tradable. Euro, British pound, Swedish Krona, Canadian dollar, Swiss franc, Japanese yen, u.s. dollar Inconvertible currencies (soft currencies) : not freely tradable because of domestic laws or unwillingness of foreigners to hold them Spot market : foreign exchange transactions that are to be consummated immediately (2 days after) Forward market : transactions that are to occur sometime in the future. Swap transaction : a transaction in which the same currency is bought and sold simultaneously, but delivery is made at two different points in time. Currency future : a contract in which it is for a standard amount on a standard delivery date Currency option : allows a firm to buy/sell a specified amount of a foreign currency at a specified price at any time up to a specified date. Call option
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This note was uploaded on 03/26/2008 for the course MGMT 450 taught by Professor Staff during the Spring '08 term at Texas A&M.

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Mgmt 450 Test - Mgmt 450 Test#3 Chapter 8 Foreign Exchange...

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