the flashcards - International finance

foreign direct investment

occurs when a firm invests directly in new facilities to produce and/or market in a foreign country

Terms of Trade

• Related to current accounts and balance of payments, the terms of trade is the ratio of export prices to import prices.

inflation

A country with government debt is less likely to acquire foreign capital, leading to...

Recession

As a result, its currency weakens in comparison to that of other countries, therefore lowering the exchange rate.

Speculation

If a country's currency value is expected to rise, investors will demand more of that currency in order to make a profit in the near future.

A forward contract

is an agreement to buy or sell an asset in the future at prices agreed upon today.

A forward premium

is frequently measured as the difference between the current spot rate and the forward rate, so it is reasonable to assume that the future spot rate will be equal to the current futures rate.

Hazard

Something that can potentially cause harm

risk in business

the likelihood of a loss or reduced profit

Long call • Short call • Long put • Short put

The basic trades of traded stock options

Derivatives

are financial contracts, whose values are derived from the value of something else (known as the underlying)

Common derivative contract types

– futures/forwards, – options, – swaps.

A trigger – a new event

Reduction of int. rate

Central bank increases the int. rates %

The pursuit of the change

AMBER GOLD loses the liquidity

The colapse