Definitions
What does IBT stand for?
International Business and Trade
The BSP controls the money supply and influences interest rates to achieve low and stable inflation, helping maintain the purchasing power of the Philippine peso. What major function of the BSP is this?
Formulate and Implement Monetary Policy
Exchange rates change between the contract date and the payment date. What is it called?
Transaction Risk
Example of Transaction Risk
A common strategy of Hedging that locks in an exchange rate for a future transaction.
Forward Contract
It refers to the framework of rules, institutions, agreements, and financial practices that govern international payments and exchange rates among countries.
International Monetary System (IMS)
The BSP has the exclusive authority to provide Philippine banknotes and coins. What major function of the BSP is this?
Issue Philippine Currency
Exchange rate changes affect the reported value of foreign subsidiaries' financial statements. What is it called?
Translation Risk
A company agrees today to by USD at a fixed rate in 90 days. This is an example of?
A common strategy of Hedging that standardized currency contract traded on an exchange.
Futures Contract
It is the possibility that changes in exchange rates will affect the value of the international transactions, investments of business profits.
Currency Risk (foreign exchange or FX risk)
The BSP's primary mandate, where they have to preserve purchasing money over time.
Maintain Price Stability
Long-term exchange rate changes affect a company's competitiveness and future profits. What is it called?
Economic (Operating) Risk
A multinational company swaps PHP to USD to finance overseas operations. This is an example of?
Example of Currency Swap
A common strategy of Hedging that gives the right, but not the obligation, to exchange currency at a fixed rate.
Currency Option
It is the process of protecting a business from losses caused by exchange rate fluctuations. Its goal is to reduce risk and stabilize future cash flow.
The BSP regulates and examines banks and other supervised financial institutions to ensure their safety and soundness and compliance with banking laws and regulations. What Major function of the BSP is this?
Supervise banks and Financial Institutions
Give the effect of Currency Risk that decreases the residual income earned.
Reduced profit
What is an example of a Financial institutions that is being supervised by the BSP?
Commercial Banks
A common strategy of Hedging about Two (2) parties exchanging currencies and agree to exchange them back later.
Currency Swap
It is the central bank and the highest monetary authority of the Philippines
Bangko Sentral ng Pilipinas (BSP)
The BSP monitors risks within the financial system and implements policies that strengthen financial institutions, ensuring that the banking and payment systems remain resilient during periods of economic uncertainty.
Promote Financial Stability
Give the effect of Currency Risk that impacts the morale of investors.
Reduced investor confidence
A company uses the option only if market rates become unfavorable. This is an example of?
Example of Currency Option
A common strategy of Hedging that matches revenues and expenses in the same currency to reduce exchange risk.
Natural Hedging