Index
Note: Page numbers followed by “f,” “t,” and “b” refer to figures, tables, and boxes, respectively.
A
Absolute purchasing power parity,
136–137
Absorption approach to balance of trade,
247–248
Adjusted present value (APV),
185
Adjustment, balance of payments,
74–76
Adjustment mechanism,
284
American depositary receipts (ADRs),
208–209
Approximate covered interest rate parity,
122
Arbitrage
three-point/triangular,
12,
13t
Argentina, currency board arrangement,
45,
46
Arm’s-length pricing,
182
Asian financial crisis (1997–1998),
45–46,
212
Asian trading,
Asymmetric information effect,
16,
16
Australian dollar (AUD), LIBOR and,
114
B
current account disequilibria,
71–74
equilibrium and adjustment,
74–76
official settlements balance measures,
68
transactions classifications,
69–71,
69t
U.S. international transactions,
60f
Bank for International Settlements (BIS),
3–4,
219
Bank notes,
Bankruptcy
high levels of leverage and,
218–219
Barings Investment bank,
15b
Bid,
Bid–offer prices,
Bilateral direct-dealing,
5–6
BlackRock Investment Institute,
227
BlackRock Sovereign Risk Index,
228f
BP curve (balance of payments equilibrium),
252,
257–260
central bank intervention during,
30–33,
31f
exchange rate adjustments, history of,
30t
Bretton Woods Conference,
29
British Bankers’ Association (BBA),
114–115
British pound (GBP), LIBOR and,
114
C
Canadian dollar (CAD), LIBOR and,
114
Capital expenditures,
184
Cash management, multinational firm,
175–178
Central bank, intervention during Bretton Woods,
30–33,
31f
Certificates of deposit,
113
Chicago Mercantile Exchange (CME),
94
China, foreign reserve buildup in,
37b
Coefficient of elasticity of demand,
234
Commodity money standard,
26
Compensating balances,
89
Covered interest rate arbitrage,
121–122
Currency
See also specific entries
Currency devaluation
Currency exchange rates,
8t
Currency substitution approach, MAER and,
299–301
Current account disequilibria,
71–74
D
Danish krone (DKK), LIBOR and,
114
Deposits, in Eurocurrency market,
113
Destabilizing speculation,
42–43
Direct investment, defined,
66
Direct-dealing, bilateral,
5–6
Domestic financial system flaws, financial crisis and,
213–214
Domestic macroeconomic policy, financial crisis and,
213
Domestic securities, favor of,
196
E
ECCU member countries,
46
Economic growth, country risk analysis and,
227
Economy, equilibrium for,
258
Effective return on foreign investment,
123–124
Electronic brokers market,
94
Endogenous variables, PPP,
141
Entrepreneurs, risk aversion and,
163b
Equilibrium
balance of payments,
74–76
exchange rates of old currencies replaced by,
50,
50t
distinguishing feature of,
106
interest rate spreads and risk,
107–109
Euromoney (magazine),
23,
23
European Monetary Institute (EMI),
49
European Monetary System (EMS),
49–51
European System of Central Banks,
50–51
European trading,
Exact interest rate parity,
122
currency substitution approach and,
299–301
expected, term structure of interest rates and,
127–130
standard deviations of, MAER and,
291,
292t
Exchange rate-term structure relationship,
129f,
130
Executive Board, ECB,
50–51
Exogenous variables, PPP,
141
Expectations theory, term structure of interest rates,
128
Exports, country risk analysis and,
227
External debt, country risk analysis and,
226
External finance position, in BlackRock Sovereign Risk Index,
227
External macroeconomic equilibrium,
251–252
External shocks, financial crisis and,
213
F
Falling international reserves, financial crisis and,
214
Federal Reserve Board,
21–22
Financial Accounting Standards Board (FASB),
159
Financial control, multinational firm,
173–175
domestic financial system flaws,
213–214
domestic macroeconomic policy,
213
falling international reserves,
214
fixed exchange rate and,
214
Financial institutions
Financial research, logarithms in,
133–134
Financial sector health, in BlackRock Sovereign Risk Index,
227
Fiscal policy
Fiscal space, in BlackRock Sovereign Risk Index,
227
financial crisis and,
214
Floating exchange rate system (1973 to present),
39–41,
40f,
42
“dollarization”/no separate legal tender,
41
fixed exchange rate and,
41,
42,
46
monetary approach for,
285
Foreign direct investment (FDI),
201–204
Foreign exchange market,
6t
defined,
geographic rate activity,
5–8,
5f
short-term rate movements,
14–16
spot currency exchange rates,
8t,
10t
spot exchange rates,
8–11
24-hour nature of, ,
6–7,
7f,
Foreign exchange risk,
157
elimination strategies,
160
transaction exposure,
158
translation exposure,
158
Foreign exchange swap,
90
Foreign exchange trading
defined,
Foreign official liabilities,
66,
68
Forward exchange market,
88
forward-looking instruments,
100–101
for major traded currencies,
88f
Forward with option exit (FOX),
100
Fundamental model
foreign exchange rate, forecasting,
168–169
G
GDP per capita, PPP values and,
147
Geographic foreign exchange rate activity,
5–8,
5f
Global depositary receipts (GDRs),
209
Global foreign exchange,
4f
as commodity money standard,
26
Governing Council, ECB,
50–51
Great Recession
Asian financial crisis vs.,
215–219
Greek debt crisis
Greenwich Mean Time (GMT),
H
Hong Kong, currency board arrangement,
45,
46
I
ICE Benchmark Administration,
116
government controls and,
125
transactions cost and,
124
Internal macroeconomic equilibrium,
251–252
International banking facilities (IBFs),
109–110
International capital flows,
107–108
International currency symbols,
10t
International lending
International lending and crises
financial crisis, causes of,
212–215
International Monetary Fund (IMF),
54
current exchange rate arrangements,
53,
54t–57t
special drawing rights,
76
International Monetary Market (IMM),
94
International monetary system,
25,
45–48
Bretton Woods agreement (1944–1973),
29–30,
30t
central bank intervention during,
30–33,
31f
current exchange practices of IMF countries,
53,
54t–57t
European Monetary System (EMS) and euro,
49–51,
50t
exchange rate system, selection of,
41–44
floating exchange rates (1973 to present),
39–41,
40f
interwar period (1918–1939),
28–29
optimum currency areas,
48–49
transition years (1971–1973),
33–34
International policy coordination,
268–270
China, foreign reserve buildup in,
37b
International reserve holdings, country risk analysis and,
226
International transactions for Brazil,
82t–83t
Intervention
central bank, during Bretton Woods,
30–33,
31f
Interwar period (1918–1939),
28–29
as period of competitive devaluations,
28–29
effect on exchange rates,
16
IS-LM-BP approach
J
Japanese yen (JPY)
K
L
Latin American debt crisis,
211–212
Leverage levels, for financial institutions, bankruptcy and,
218–219
Liquidity premium theory, term structure of interest rates,
128
Logarithms
London exchange
dollar and other currencies rate,
13,
13
London Interbank Offered Rate (LIBOR),
114
Long-term foreign exchange movements,
17–18,
17f
M
Macroeconomics, open economy,
251
fiscal policy
international policy coordination,
268–270
monetary policy
Managed floating exchange rates,
41
monetary approach for,
285
Marginal propensity to import,
273
Marginal propensity to save,
273
Mid-price,
Monetary approach
open economy macroeconomics,
277
for managed floating exchange rate,
285
specie-flow mechanism,
278
Monetary approach to balance of payments (MABP),
277,
282–284
official settlements balance,
282
policy implications of,
282
Monetary approach to exchange rates (MAER),
277,
284
adjustment mechanism,
284
determination, extensions to,
291
currency substitution approach,
299–301
standard deviations of prices and exchange rates,
291,
292t
Monetary policy
Mortgage backed security (MBS),
217
Multinational cash management,
176
Multinational firm, financial management of,
173
Multiplier, open-economy,
273,
274f
Mundell–Fleming model,
264
N
National income and product accounting (NIPA),
71
New York exchange
dollar and other currencies rate,
13,
13
New York trading,
New Zealand dollar (NZD)
Nominal interest rate,
125
North American trading,
NYSE market capitalization,
114
O
Of the Balance of Trade,
278
Offer,
Official settlements balance,
68,
282
Open economy
Mundell–Fleming model of,
264
Optimum currency area,
48–49
Over-the-counter (OTC) market,
208
P
Participating forward,
100
The Penn World Tables,
147
People’s Bank of China,
37b
Perfect capital mobility,
262
Political risk, interest rate parity and,
125
Political uncertainty, key features,
226
Portfolio investment
foreign direct investment (FDI),
201–204
Portfolio-balance (PB) approach, MAER and,
293–294
Preferred habitat theory, term structure of interest rates,
128
Primary income account,
61–62
Purchasing power parity (PPP),
136
R
Relative purchasing power parity,
139–140
Reserve assets, defined,
66
Risk lovers/preferrer,
163b
Risks
S
Short-term foreign exchange rate movements,
14–16
Smithsonian agreement,
33–34
Specie-flow mechanism,
278
Spot currency exchange rates,
8t,
10t
Spot exchange rates,
8–11,
87,
291,
293,
293,
294–295,
295,
296f,
297,
299f
economic disturbance and,
297
Spot rates, MAER approach and,
292,
293
Spurious, deviations
“Statistical discrepancy”,
71
Stock exchanges
Supply and demand diagram
Swedish krona (SKR), LIBOR and,
114
U.S. dollar rate and,
12,
12,
13
Syndicates of Eurobanks,
113
T
Taxes
domestic securities, favor of,
196
Technical trading model
foreign exchange rate, forecasting,
168–169
liquidity premium theory,
128
preferred habitat theory,
128
Term structure-exchange rate relationship,
129f,
130
Three-point/triangular arbitrage,
12,
13t
Tokyo lunch break, trading during,
Transaction classifications, balance of payments and,
69–71,
69t
Transaction costs
domestic securities, favor of,
196
interest rate parity and,
124
“Transaction costs close” rate,
11
Transaction exposure,
158
Transition years (1971–1973),
33–34
Translation exposure,
158
Transparency, lack of
Triangular/three-point arbitrage,
12,
13t
Two-point arbitrage,
11–12
U
United States (US)
Bear Stearns investment bank,
218
capital account transactions,
64–66
current account transactions,
65t
international transactions,
60f
for two different exchange rate indices,
22,
22f
U.S. Internal Revenue Code,
182
V
Volatile exchange rates,
292,
300
W
Willingness to pay, in BlackRock Sovereign Risk Index,
227
“Window-dressing”
World Bank, corrupt politicians and,
225