Types of currencies
Count types of currencies exist according to the degree of convertibility?
Fully convertible currencies
Partially convertible currencies
Non-convertible currencies
How is currency policy classified according to its objectives and implementation period?
Current and Structural
Penny is equal to ...
1 cent
Types of exchange rate changes according to the degree of flexibility
floating, fixed, managed floating
What is a forward currency contract and what is its main purpose?
an agreement between two parties to buy or sell a specific amount of currency at a predetermined exchange rate on a future date.
What is a fully convertible currency?
currency that can be freely exchanged for any other currency without any restrictions by the government. It is accepted in international trade and financial transactions.
What is the main difference between structural (long-term) and current (short-term) currency policy?
Structural policy focuses on long-term systemic changes, while current policy deals with short-term, rapid management.
Quarter is equal to ...
25 cent
Floating Exchange Rate is ...
currency value that is determined freely by market forces — mainly supply and demand in the foreign exchange market — without direct government or central bank intervention.
How does a currency option provide risk management flexibility compared to a forward contract? Give an example.
Forward contract: Obliges the parties to transact at a set rate on a future date.
Currency option: Gives the right, but not the obligation, to buy or sell currency. This allows the holder to benefit if the exchange rate moves favorably while limiting losses to the premium paid if the rate moves unfavorably.
Which currencies are considered partially convertible?
can be exchanged for foreign currency but only under certain conditions or for certain types of transactions. Governments may restrict some capital transactions while allowing current account transactions.
Explain discount (diskont) and foreign exchange (deviz) policy?
Discount (Diskont) currency policy – This policy involves regulating the money supply and credit conditions through changes in the discount rate (the interest rate at which central banks lend to commercial banks). By increasing or decreasing the discount rate, the central bank can influence borrowing, spending, and overall economic activity.
Foreign exchange (Deviz) currency policy – This policy focuses on managing the national currency in international markets. It includes controlling exchange rates, foreign currency reserves, and currency operations to stabilize the currency and maintain balance of payments.
Dime is equal to ...
10 cent
Fixed exchange rate is ...
system where a country’s currency value is pegged to another major currency or to a basket of currencies, and the government/central bank maintains this rate through interventions.
Explain the difference between a futures contract and a forward contract in terms of standardization and trading venue.
Forward contract:
Customized terms (amount, date, etc.) agreed between the parties.
Traded over-the-counter (OTC), i.e., outside a formal exchange.
Futures contract:
Standardized contract terms (amount, expiration, etc.).
Traded on an exchange.
What does non-convertible currency mean?
currency that cannot be legally exchanged for foreign currency outside its own country. Its use is limited to domestic transactions.
Explain how a central bank can use currency interventions and foreign exchange reserve diversification simultaneously to stabilize a country’s exchange rate in the face of volatile capital flows. Discuss the potential risks of this strategy.
Teacher explains
Nickel is equal to ...
5 centes
Managed floating exchange rate is
system where the currency value is mostly determined by market forces, but the central bank occasionally intervenes to stabilize or influence the exchange rate when needed.
Describe a currency swap and explain how it differs from a simple forward contract in terms of cash flows and duration.
Currency swap: An agreement where two parties exchange currencies at the beginning and end of the swap, often including multiple interest payments during the swap’s life.
Differences from forward contract:
Cash flows: Forward involves a single future payment, while a swap involves multiple cash flows, including interest payments and principal exchange.
Duration: Forwards are usually short-term, while swaps are typically long-term and more complex.
List at least 5 currencies for each of the following types:
Fully convertible currencies
Partially convertible currencies
Non-convertible currencies
Teacher knows
Analyze the macroeconomic consequences of imposing currency restrictions, combined with devaluation or revaluation of the national currency. How can these measures affect trade, inflation, and investor confidence?
Teacher explains
How much money do you have in total if you own 2 pennies, 5 dimes, 11 quarters, and 2 nickels?
3.37 $
(337 cents)
What type of exchange rate regime does Uzbekistan currently use according to the degree of flexibility?
By law Uzbekistan applies a floating exchange rate, but in practice it functions as a managed floating regime.
The three-month forward rate F(USD/GBP) = 2.00. After three months, the spot rate S(USD/GBP) = 2.05. If the investor's forecast is correct, how can the investor profit from this situation?
5 cent for 1 USD