If ----------- is violated, one can lock in guaranteed profit by borrowing in one currency and lending in another, with exchange risk hedged via forward contract.

----------- implies that in the short run, the exchange rate depends on: a. the relative ------------------ between two countries and b.the expected future exchange rate

--------------------------- states that the exchange rate between two countries' currencies should be equal to the ratio of their price levels

PPP is the manifestation of the law of ------------ applied internationally to a standard commodity basket

The three approaches to exchange rate forecasting are: the efficient market approach, the fundamental approach and the ------------ approach

The two types of equity related bonds are convertible bonds and bonds with -------------

A ------------- bond is a straight fixed-rate bond issued in one currency and pays coupon interest in the same currency, but the principal is repaid in another currency

A ---------- issue is a very large bond issue that would be difficult to sell if any one country or region of the world.

------------------- bonds are usually bearer bonds.

With ------------ bonds possession is the evidence of ownership

A ---------------- issue is one offered by a foreign borrower to the investors in a national capital market and denominated in that nation's currency

A -------- issue is one denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency

International banks facilitate the imports and exports of their clients by arranging trade financing, also arrange currency exchange, assist in -------------- exchange rate exposure, trade foreign exchange of their account and make a market in currency derivative products.

A ------------ relationship is established when two banks maintain a correspondent bank account with one another.

Based on ---------- proposition, a firm’s financial policies and strategies are irrelevant in perfect financial markets because investors are capable of making similar financial decisions on their personal accounts in the same way that the firms financial managers do and at the same cost

A firm is at a point of ----------- if its cash inflows are not sufficient to service debt payments and other fixed cost.

Transaction exposure measures the sensitivity (gains or losses) of -------------- values, measured in domestic currency, of the firm’s transaction cash flows, denominated in foreign currency, to unexpected changes in the exchange rate

Transaction exposure can be measured through the variability of the currencies for which there are ------------------- transactions and, using the value-at-risk method

Value-at-risk method employs the historical ------------- approach which makes use of historical data of transaction cash flows and simulation

•A cross – sectional regression  equation is obtained with the value of the firms cash flows as a function of the spot exchange rates to measure ---------------- exposure

•In the current rate method of translation accounting, the ---------- exchange rate is used to translate all balance sheet items such as account receivables and payables, short and long term debts and inventory and plant equipment with the exception of common stock which is translated at historical exchange rates.

•The Monetary/Non monetary methods of translation accounting translates all monetary assets and liabilities such as short term debts at current exchange rates and all non monetary assets and liabilities such as equipment and machinery at ------------------- exchange.

Another method, the current / non current method translates assets and liabilities according to their

Under -------------- transactions are reduced to ones that involve only payment of the difference between cash inflows and outflows

------------------------- netting is applied in a situation involving cash flows between more than two subsidiaries in different countries

If foreign currency is expected to appreciate and there is an outstanding payment to be made in that currency, then -------------- would prevent losses which could have been incurred

•A ----------- payment within the firm also creates loans from one subsidiary to another.

Long term structural changes within a multinational firm are effective in management of ---------------------- exposure.

•These long term structural adjustments are more effective in reducing exposure to currency risk than other --------------- hedging methods as well as ----------------- hedging methods.

To counter --------------------, the subsidiary increases prices to appropriately old prices.

Asset-liability management involves increasing assets by increasing investments and ---------------- short term debts (liability) if currency appreciation is expected and doing the reverse if currency depreciation is expected.

•------------------------  management procedure is particularly effective in minimizing translation exposure.

Financial market hedging products, known as ------------------ securities are relatively costly for the firm but are very effective in hedging for instance against -------------------exposure.

The down side to these relatively low cost derivative products is that they are not as effective in hedging against ------------- exposure as they are in hedging against -------------------- exposure.