Fundamentals
Exchange Rate Systems
International Arbitrage
Parity Conditions
Currency risk
100
What is MNCs?
Multinational corporations
100
What is exchange rate?
Exchange rate specifies the rate at which one currency can be exchanged for another.
100
What is arbitrage?
Capitalizing on a discrepancy in quoted prices by making a riskless profit.
100
What is the meaning of fisher effect in international business?
Interest rates and inflation rates are related.
100
What technicals can be use for forecasting Currency movement?
Technical Fundamental Market-based Mixed
200
Should the Australian government sponsor a marketing campaign that promotes goods that are produced in Australia.
Yes
200
What is the function of foreign exchange (FX) market?
The foreign exchange (FX) market allows for the exchange of one currency for another. Large commercial banks serve this market by holding inventories of each currency so that they can accommodate requests by individuals or MNCs.
200
State tree types of arbitrage.
Locational arbitrage Triangular arbitrage Covered interest arbitrage
200
What is formulate of Purchasing Power Parity?
[E(SUSD per AUD1)/ SUSD PER AUD1]-1 =[E(1+πUSD)/E(1+ πAUD)]-1
200
What is exchange rate risk?
Risk that a company’s performance is affected by exchange rate movements.
300
What is Balance of payments (BOP)?
It is a summary of transactions between domestic and foreign residents for a specific country over a specified period of time.
300
What are most important currencies in FX?
US dollar, GBP, euro, JPY, SFr, Australian dollar, Chinese Yuan (RMB)
300
International Arbitrage depends which two factors?
Interest rate effect • Interest rate differential Exchange rate effect • Change in value of currencies
300
What is the impact of Relatively high local inflation?
Relatively high local inflation -> imports increase, exports decrease -> local currency depreciates (by same degree as inflation differential).
300
Provide tree forms of exchange rate exposure.
Transaction exposure Economic exposure Translation exposure
400
What is the agency problem of MNCs.
The agency problem reflects a conflict of interests between decision-making managers and the owners of the MNC.
400
Name 5 factors that affect the bid-ask spread of an exchange rate?
Order costs Inventory costs Competition Volume Currency risk
400
Spot rate USD1.0500=AUD1 • interest rate in USD is 0.5% p.a. • interest rate in AUD is 4.5% p.a. How can a speculator make a risky profit?
Borrow USD and convert to AUD, then invest in AUD at 4.5% risk free asset, after convert all the AUD back to USD and pay back the debt.
400
If the AUD-amount of one Big Mac in Sydney exactly buys one Big Mac in Los Angeles (after exchanging the AUD- amount in US dollar), purchasing power parity holds in this particular case. (True or False )
False
400
What is transaction exposure assessment？
Estimate net cash flows in each currency. Measure the potential impact of the currency exposure.
500
Explain how the existence of imperfect markets has led to the establishment of subsidiaries in foreign markets.
Because of imperfect markets, resources cannot be easily and freely retrieved by the MNC. Consequently, the MNC must sometimes go to the resources rather than retrieve resources (such as land, labor, etc.).
500
State a least two facts that influence the ERs?
Inflaction Interest rate
500
Spot rate AUD1.05 = USD1; Expected spot rate AUD1.05 = USD1 in one year; Interest rate in AUD is 4% p.a.; Interest rate in USD is 2% p.a.; What is the riskless profit opportunity in %?
No riskless profit possible
500
Do low-yielding currencies often trade at a forward premium or discount?
Discount
500
What are determinants of translation exposure?
Proportion of its business conducted by foreign subsidiaries Locations of its foreign subsidiaries Accounting methods
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