Foreign Exchange
This exchange rate system allows countries to fix their exchange rates to a common currency, typically the US dollar.
What is Fixed exchange rate system?
Companies that invest in assets located outside their home country are engaging in this activity.
What is Foreign Direct Investment (FDI)?
This cost of capital reflects the weighted average cost of a company's debt and equity financing.
what is Weighted Average Cost of Capital?
The risk of a currency's value fluctuating is known by this term.
What is Exchange rate risk?
A measure of the political and economic risk associated with investing in a particular country.
What is Country Risk?
The risk associated with a company's overall business operations is captured by this component of the cost of capital.
what is Unsystematic Risk?
Businesses use this financial instrument to lock in an exchange rate for a future transaction. (except weekends/holidays).
What is Forward Contract?
This method of international investment involves buying stocks and bonds issued by foreign companies.
What is portfolio Investment?
This type of risk cannot be diversified away through portfolio diversification and is influenced by factors like economic conditions and political stability.
what is Systematic Risk?
This theory suggests that exchange rates adjust to reflect the difference in inflation rates between countries. (purchasing power between different currencies.)
What is Purchasing Power Parity? (PPP)
The additional return required by investors to compensate for the added risk of investing internationally is known as this.
what is Risk Premium?
Companies with higher creditworthiness will typically enjoy a lower cost of capital due to this factor.
what is Debt Rating?
This intervention strategy involves a central bank buying or selling its own currency to influence the exchange rate.
what is Open Market Operations?
What is the global marketplace where currencies are traded, enabling international trade, tourism, and investment?
What is Forex Market?
The cost of equity capital can be estimated using this capital asset pricing model, which considers the risk-free rate, market risk premium, and a company's beta.
what is a Capital Asset Pricing Model (CAPM)?