BEC Economic Theory Review 15

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Joens1313
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299926
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BEC Economic Theory Review 15
Updated:
2015-04-04 12:34:32
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BEC Economic Theory Review 15
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BEC Economic Theory Review 15
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  1. What is the spot rate?
    the spot rate is the rate paid for currency now (on the spot)
  2. What is the forward exchange rate?
    the forward exchange rate is the rate agreed to be paid in the future.  The difference between the spot rate and the forward exchange rate is called a discount or premium.
  3. for the forward exchange rate, the difference between the sport rate and the forward exchange rate is called a -------------- or --------------.
    for the forward exchange rate, the difference between the spot rate and the forward exchange rate is called a discount or premium.
  4. for the forward exchange rate, the difference between the ------------and the --------------------------- is called a discount or premium.
    for the forward exchange rate, the difference between the spot rate and the forward exchange rate is called a discount or premium..
  5. if the domestic interest rate is higher than the forward interest rate, the forward exchange contract sells at a ------------------.
    if the domestic interest rate is higher than the forward interest rate, the forward exchange contract sells at a premium.
  6. if the domestic interest rate is lower than the foreign interest rate, the forward exchange contract sells at a -------------------.
    if the domestic interest rate is lower than the foreign interest rate, the forward exchange contract sells at a discount.
  7. in terms of risk avoidance, what does it mean to hedge?
    hedging involves offsetting a gain or loss on receivables or payables denominated in foreign currencies by purchasing or selling forward exchange contracts. Buying these contract covers liabilities in the foreign currency selling covers receivables.
  8. in terms of risk avoidance, what does it mean to balance?
    entities with large amounts of foreign business establish centers to attempt to achieve balance between foreign receivables and payables
  9. in terms of risk avoidance, what does it mean to barter?
    if an entity barters (meaning transactions are non monetary) currency fluctuations don't affect the transactions.
  10. What does exchange risk mean?
    exchange risk is the risk that exchange rates will change
  11. What does sovereignty risk mean?
    sovereignty risk  is the risk of significant restrictions on removal of the investment either as dividends or sale of the operations, including nationalizations.

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