BUSM 432 midterm review sheet

BUSM 432 midterm review sheet - the currency value to...

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Forward - any size, any maturity, trading between individual and banks, bid and ask quotes, no collateral, contract normally deliver (can offset), no commission, traded 24 hours a day, parties in direct contact, liquid relatively large in sales volume. Future – standardized contracts, fixed maturities, traded on exchange, open outcry sets prices, initial margin marked to market, rarely delivered, commission, traded during exchange hours, parties unknown to each other, liquid but small in sales vol. Option – Calls – right to buy set price date; put – right to sell at set price and date FX rate changes - $ strengthens – buys more foreign currency, foreign products cheaper (more imports) Trade deficit – excess supply of the country’s currency on world markets, and the government should then devalue currency or spend its official reserves to support its value Surplus – demand for the country’s currency exceeded the supply and that the government should allow
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Unformatted text preview: the currency value to increase I value or intervene and accumulate additional foreign currency Direct- investors exert some explicit degree of control over assets, >10%, Portfolio – no control Income – proportion of net income that is paid back to the parent company in the current year, wages salaries paid to nonresident workers. Other financial items – consists of various short term and long term trade credits, cross border loans, AR AP related to cross border trade Euro dollars- $ deposited in a bank outside the US; How created – US co. pays foreign co. in $, deposited into London Bank; Why important – Supply of $ up outside US because of loans. Impact of other factors- Inflation, Economic growth, Balance of payment, (Curr. Acc down $ down) Safety and security, Intervention, Debt problems...
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