Flashcard Set Preview
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Derivative
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Financial instruments. The price of a derivative reflects the underlying value of the financial...
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Forward contract
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Agreement between a firm and a commercial bank to exchange a specified amount of a currency...
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Forward contracts
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Often valued at $1 million or more not used by consumers or small firms
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Synthetic derivatives
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Insurance on a default-make money on another's default
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Forward premium
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% by which the forward rate exceeds spot rate at a given point in time
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Forward discount rate
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Forward premium (p) < 0
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Forward premium/discount
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Reflects the difference between the home and foreign int rates thus preventing arbitrage
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Swap
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Transaction involves a spot transaction along with a corresponding forward contract that will...
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Non deliverable forward contracts (NDF)
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Not actual exchange of currencies-one party makes a net pmt to the other based on a market...
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Currency futures contract
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Specofy a standard volume of a particular currency to be exchanged on a specific settlement...
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Depreciates
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Speculators often sell currency futures when they expect the underlying currency to
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Curency options
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Provide the right to purchase or sell currencies at specified prices (calls or puts)
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Currency call option
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Grants the holder the rot to buy a specific currency at a specific price (exercise or strike...
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Call option in the moneyCurrency put option opposite
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Exchange rate > strike price
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Call option at the money
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Exchange rate = strike price
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