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
Accounting exposure, 158
Adjustable peg, 29–30
Adjusted present value (APV), 185
Adjustment, balance of payments, 74–76
Adjustment mechanism, 284
Adoboli, Kweku, 15b
AIG, 218
American depositary receipts (ADRs), 208–209
level I ADR, 208, 208
level II ADR, 209
level III ADR, 209
Rule 144A ADR, 209
Approximate covered interest rate parity, 122
Arbitrage
currency, 11–14, 13t
three-point/triangular, 12, 13t
two-point, 11–12
Argentina, currency board arrangement, 45, 46
Arm’s-length pricing, 182
Asian financial crisis (1997–1998), 45–46, 212
Great Recession vs., 215–219
IS-LM-BP approach and, 265–268, 265f, 266f
Asian trading, 7
Asymmetric information effect, 16, 16
Australian dollar (AUD), LIBOR and, 114

B

Balance of payments, 59
See also Balance of trade
current account, 61–64, 62f
financing, 64–67, 65t
current account disequilibria, 71–74
equilibrium and adjustment, 74–76
official settlements balance measures, 68
overview, 59, 59–61, 61, 61
surplus/deficit, 61
transactions classifications, 69–71, 69t
U.S. foreign debt, 77, 78t, 79
U.S. international transactions, 60f
Balance of payments equilibrium (BP curve), See BP curve (balance of payments equilibrium)
Balance of trade, 67–68
absorption approach to, 247–248
deficits, exchange rates and, 294–296, 296f
determinants of, 233
devaluation for, See Currency devaluation
elasticities approach to, 233–237
See also Elasticity(ies)
J-curve effect and, See J-curve effect
Marshall-Lerner condition, 244–245, 245f
Balance sheet, 158–159, 158t, 159, 159–160, 159, 160
Bank for International Settlements (BIS), 3–4, 219
Bank notes, 3
Bank of England, 31–33, 33
Bank of Italy, 50–51
Bank of Japan, 287–288, 293–294
Bankers’ acceptance (BA), 180–182
Bankruptcy
CDS problems and, 218
high levels of leverage and, 218–219
Barbados trade, 43–44
Barings Bank, 96
Barings Investment bank, 15b
Base, logarithms, 132
Base money, 279
Basel III rules, 219
Basis point, 90
Bear Stearns, 218
Bid, 9
Bid–offer prices, 9
Big Mac index, 137–139, 138f
Bilateral direct-dealing, 5–6
Bill of lading, 178
Black markets, 149, 225
BlackRock Investment Institute, 227
BlackRock Sovereign Risk Index, 228f
BMW, 112, 112t
BP curve (balance of payments equilibrium), 252, 257–260
derivation, 258f
shifting, 259f
slope of, 259f
Bradford & Bingley, 218
Break forward, 100, 100
Bretton Woods agreement (1944–1973), 29–30, 38–39, 221–222
breakdown of, 33
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
Broad Currency Index, 21–22, 22, 22
Broker, 93

C

Call option, 97, 98–99
Canadian dollar (CAD), LIBOR and, 114
Capital account, 64, 70–71
See also Financial account
Capital assets, 184
Capital budgeting, 184–186
Capital controls, 107–108, 125
Capital expenditures, 184
Capital flight, 204–205
Capital inflow issues, 205–206
Cash management, multinational firm, 175–178
Central bank, intervention during Bretton Woods, 30–33, 31f
Certificates of deposit, 113
Chartists, 168–169
Chicago Mercantile Exchange (CME), 94
China, foreign reserve buildup in, 37b
Citibank, 11–12, 12, 16, 23, 23–24, 90, 90
Closed economy, 43
Coefficient of elasticity of demand, 234
Commodity money standard, 26
Compensating balances, 89
Conventional peg, 41
Corruption, role of, 225
Cost of capital, 201
Counterparty risk, 218
Country risk analysis, 226–229
Countrywide, 218
Covariance, 192–193
Covered interest rate arbitrage, 121–122
Covered return, 122
Crawling bands, 41
Crawling pegs, 41
Credit default swap (CDS), 92b–93b, 162–163, 217
Cross rate, 12, 12
Crowding-out effect, 264–265
Currency
See also specific entries
appreciated, 10–11
cross rate, 12
depreciated, 10–11
flat, 89–90
Currency arbitrage, 11–14, 13t
Currency boards, 45–48
Currency contract period, 238, 238–240, 238f, 239t
Currency devaluation
for balance of trade, 238–239
evidence from, 246–247
pass-through period following, 240–244, 241t
Currency exchange rates, 8t
Currency markets, 4–5
Currency pairs, 4–5
Currency substitution approach, MAER and, 299–301
Currency swap, 91–93
Current account, 61–64
financing, 64–67, 65t
as fraction of GDP, 62–63, 62f
Current account deficit, 63, 63–64
Current account disequilibria, 71–74

D

Danish krone (DKK), LIBOR and, 114
Dealers, foreign exchange, 17–18, 24t
Debt rescheduling, 211–212
Deep market, 197
Deposits, in Eurocurrency market, 113
Depreciation, 88
Destabilizing speculation, 42–43
Deutsche Bank, 11–12, 12, 14–15, 23
Direct investment, defined, 66
Direct-dealing, bilateral, 5–6
Discount, 90
Discount rate, 189
Diversified portfolio, 191–195
Dollar, 4–5
“Dollarization”, 45–48
advantages, 47
Domestic credit, 279
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 exposure, 158
Economic growth, country risk analysis and, 227
Economy, equilibrium for, 258
Effective return on foreign investment, 123–124
Efficient market, defined, 165, 165–166
See also Market efficiency
Elasticities approach to balance of trade, 233–237
See also Elasticity(ies)
Elasticity(ies), 233–237
J-curve and, 238
Electronic brokers market, 94
Endogenous variables, PPP, 141
Entrepreneurs, risk aversion and, 163b
Equilibrium
balance of payments, 74–76
for economy, 258
Equilibrium approach, to exchange rates, 301–302, 302, 302
Equity markets, globalization of, 197–201, 198t
Euro (EUR), 49–51
exchange rates of old currencies replaced by, 50, 50t
LIBOR, 114
Eurobanks, 105
syndicates of, 113
Eurocurrency market, 105
defined, 105
deposits in, 113
distinguishing feature of, 106
on domestic markets, 112–113
interest rate spreads and risk, 107–109
LIBOR, 114
offshore banking, See Offshore banking
Eurodollar banking, 105, 112, 113, 113, 113
Euroeuros, 105
Euromoney (magazine), 23, 23
European Central Bank (ECB), 47–48, 49–51
European Monetary Institute (EMI), 49
European Monetary System (EMS), 49–51
European System of Central Banks, 50–51
European trading, 7
European Union, 223–224
Eurosterling, 105
Exact interest rate parity, 122
Exchange rate indexes, trade-weighted, 20–23, 21t, 22f
balance of trade deficits and, 294–296, 296f
change in, 234
currency substitution approach and, 299–301
equilibrium approach to, 301–302, 302, 302
expected, term structure of interest rates and, 127–130
news and, 292–293
selection of, 41–44
standard deviations of, MAER and, 291, 292t
trade balance approach and, 294–296, 296f
Exchange rate-term structure relationship, 129f, 130
Exchange risk, 157–161
See also Foreign exchange risk
Executive Board, ECB, 50–51
Exercise price, 97
Exogenous shock, 141
Exogenous variables, PPP, 141
Expectations theory, term structure of interest rates, 128
Exports, country risk analysis and, 227
External balance, 251–252
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
Fannie Mae, 218
Federal Reserve, 236–237, 279
Federal Reserve Board, 21–22
Federal Reserve System, 46, 50–51
Financial account, 65t
Financial Accounting Standards Board (FASB), 159
Financial control, multinational firm, 173–175
Financial crisis (2008), international lending and, 97
See also Great Recession
Asian, 212
domestic financial system flaws, 213–214
domestic macroeconomic policy, 213
external shocks and, 213
falling international reserves, 214
fixed exchange rate and, 214
lack of transparency, 214–215
Latin American, 211–212
Financial institutions
leverage, bankruptcy and, 218–219
Financial management, of multinational firm, See Multinational firm, financial management of
Financial research, logarithms in, 133–134
Financial sector health, in BlackRock Sovereign Risk Index, 227
Financial theory, 162
Fiscal policy
under fixed exchange rates, 261–262, 262f
under floating exchange rates, 264–265, 264f
Fiscal space, in BlackRock Sovereign Risk Index, 227
Fisher effect, 125–126
Fisher equation, 125–126
Fixed exchange rates, 41, 42, 46, 76
financial crisis and, 214
fiscal policy under, 261–262, 262f
monetary policy under, 259f, 260–261
Fixed peg, 41
Fleming, Marcus, 264
Flexible exchange rates, 76
See also Floating exchange rate system (1973 to present)
Floating exchange rate system (1973 to present), 39–41, 40f, 42
advantages, 42
crawling bands, 41
crawling pegs, 41
currency board, 41
“dollarization”/no separate legal tender, 41
fiscal policy under, 264–265, 264f
fixed exchange rate and, 41, 42, 46
free floating, 40
horizontal bands, 41
managed, 41
monetary approach for, 285
monetary policy under, 262–264, 263f
types, 38, 40f
Forbes, Kristin, 246–247
Foreign direct investment (FDI), 201–204
Foreign exchange, 135, 142, 145
Foreign exchange market, 6t
currency arbitrage, 11–14, 13t
defined, 3
geographic rate activity, 5–8, 5f
long-term movements, 17–18, 17f
short-term rate movements, 14–16
spot currency exchange rates, 8t, 10t
spot exchange rates, 8–11
supply and demand in, 235–236, 236f
top dealers, 23–24, 24t
trade-weighted exchange rate indexes, 20–23, 21t, 22f
trading volume, 3–5, 4t
24-hour nature of, 5, 6–7, 7f, 8
Foreign exchange risk, 157
economic exposure, 158
elimination strategies, 160
forecasting, 167–168
fundamental model, 168–169
technical trading model, 168–169
market efficiency and, 165, 165–166
risk premium, 161–165
transaction exposure, 158
translation exposure, 158
types, 157–161
Foreign exchange swap, 90
Foreign exchange trading
defined, 3
top dealers, 23–24, 24t
volume, 3–5, 4t, 6, 7f
Foreign official liabilities, 66, 68
defined, 66
Forward discount, 89–90
Forward exchange market, 88
advantages, 89
defined, 89–90
forward discount, 89–90
forward premium, 89–90
forward-looking instruments, 100–101
futures, 94–97, 95f
for major traded currencies, 88f
options, 97–100, 98f
overview, 87, 87, 88, 88
swaps, 90–94, 93t
Forward exchange rate, 88f, 89–90, 124
Forward premium, 89–90
Forward with option exit (FOX), 100
Freddie Mac, 218
Free floating, 40
Fundamental model
foreign exchange rate, forecasting, 168–169
Futures market, 94–97, 95f

G

Gagnon, Joseph, 246
GDP per capita, PPP values and, 147
Geographic foreign exchange rate activity, 5–8, 5f
German Bundesbank, 50–51
Gladwell, Malcolm, 163b
Global depositary receipts (GDRs), 209
Global foreign exchange, 4f
Globalization, of equity markets, 197–201, 198t
Go home “flat”, 14–15
Gold exchange standard, 29–30, 33–34
Gold standard (1880–1914), 25–28, 27f
as commodity money standard, 26
as “golden era”, 26–27
Goods market equilibrium (IS curve), See IS curve (goods market equilibrium)
Governing Council, ECB, 50–51
Great Recession
Asian financial crisis vs., 215–219
international lending and, 215–219
Greek debt crisis
international lending and, 219–222
Greenwich Mean Time (GMT), 5
Gross domestic product (GDP), 28–29, 43, 49–50, 62–63, 77

H

Hedging, 90
options for, 97, 97
Hong Kong, currency board arrangement, 45, 46
Horizontal bands, 41
Housing sectors, crisis in US, 215–216, 216f, 217f
HSBC, 90
Hume, David, 278

I

IBM, 111, 111t
ICE Benchmark Administration, 116
ICE LIBOR, 116–118
IMF conditionality, 222–225
Indonesian plan, 45–46
Inflation, 125–126, 126–127, 126t
interest rates and, 125–126
PPP and, 140–141
Interest rate parity, 121–123
deviations, 124–125
government controls and, 125
political risk and, 125
transactions cost and, 124
Interest rates, 126–127, 126t
See also Exchange rates
inflation and, 125–126
IS curve slopes and, 253–254
risk, 107–109
spreads, 107–109
Internal balance, 251–252
Internal macroeconomic equilibrium, 251–252
International banking facilities (IBFs), 109–110
goal, 110
growth, 110
International capital flows, 107–108
International currency symbols, 10t
International investment, opportunities, 197
See also Portfolio investment: international
International lending
country risk analysis and, 226–229
Great recession and, 215–219
IMF conditionality and, 222–225
International lending and crises
corruption, role of, 225
country risk analysis, 226–229
financial crisis, causes of, 212–215
and the Great Recession, 215–219
and the Greek debt crisis, 219–222
IMF conditionality, 222–225
international lending, 211–212
International Monetary Fund (IMF), 54
corruption and, 225
current exchange rate arrangements, 53, 54t–57t
special drawing rights, 76
voting power and, 223
International Monetary Market (IMM), 94
International monetary system, 25, 45–48
Bretton Woods agreement (1944–1973), 29–30, 30t
breakdown of, 33
central bank intervention during, 30–33, 31f
currency boards, 45–48
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
gold standard (1880–1914), 25–28, 27f
international reserve currencies, 34–39, 35t, 38t, 39f
interwar period (1918–1939), 28–29
optimum currency areas, 48–49
Special Drawing Rights, 32b–33b, 32t
transition years (1971–1973), 33–34
International policy coordination, 268–270
International reserve currencies, 34–39, 35t, 279
China, foreign reserve buildup in, 37b
growth in, 38–39, 39f
roles of, 38t
International reserve holdings, country risk analysis and, 226
International transactions for Brazil, 82t–83t
Intervention
central bank, during Bretton Woods, 30–33, 31f
sterilized, 287–288
Interwar period (1918–1939), 28–29
as period of competitive devaluations, 28–29
Intrafirm transfers, 182–184, 183t
Inventory control, 16, 16, 16
effect on exchange rates, 16
Investment income, See Primary income account
Irrevocable LOC, 178
IS curve (goods market equilibrium), 252, 252–255, 254f
derivation of, 254f
IS-LM-BP approach
open economy macroeconomics, 251–252, 302, 302, 302–303
See also Macroeconomics, open economy
Asian financial crisis and, 265–268, 265f, 266f
balance of payments (BP curve), See BP curve (balance of payments equilibrium)
goods market (IS curve), See IS curve (goods market equilibrium)
money market (LM curve), See LM curve (money market equilibrium)

J

Japanese yen (JPY)
LIBOR and, 114
yen/dollar exchange rate, 17, 17f, 18, 18
J-curve effect, 236–237, 237f
currency contract period, 238–240, 238f, 239t
elasticities and, 238
pass through analysis, 238, 240–244, 241t, 242f

K

Keynes, John Maynard, 28
Klitgaard, Thomas, 246
Knetter, Michael, 246

L

Lagging currency flows, 177–178
Latin American debt crisis, 211–212
Law of one price, 137, 280
Leading currency flows, 177–178
Leeson, Nick, 15b, 96
Lehman Brothers, 97, 218
Lending, international, See International lending
Lerner, Abba, 244
Letter of credit (LOC), 178–180, 179f
irrevocable, 178
revocable, 178
Leverage levels, for financial institutions, bankruptcy and, 218–219
Liquid assets, 175
Liquidity premium theory, term structure of interest rates, 128
LM curve (money market equilibrium), 252, 255–257
derivation of, 256f
Logarithms
base, 132
defined, 132, 132, 132
power, 132
properties of, 134
use in financial research, 133–134
London exchange
dollar and other currencies rate, 13, 13
London Interbank Offered Rate (LIBOR), 114
BBA LIBOR, 114–115
daily value of, 114–115
ICE LIBOR, 116–118
rigging, 115–116
Long position in dollars, 14–15, 15–16, 167–168
Long-run equilibrium exchange rate, 295, 295–296
Long-term foreign exchange movements, 17–18, 17f

M

Maastricht Treaty, 49
Macroeconomics, open economy, 251
equilibrium
See also IS-LM-BP approach
balance of payments (BP curve), See BP curve (balance of payments equilibrium)
goods market (IS curve), See IS curve (goods market equilibrium)
internal and external, 251–252
money market (LM curve), See LM curve (money market equilibrium)
fiscal policy
under fixed exchange rates, 261–262, 262f
under floating exchange rates, 264–265, 264f
innovations, 301–303
international policy coordination, 268–270
monetary approach, See Monetary approach
monetary policy
under fixed exchange rates, 260–261, 260f
under floating exchange rates, 262–264, 263f
Major Currency Index, 21–22, 22
Managed floating exchange rates, 41
monetary approach for, 285
Margin, 95–96
Margin call, 96
Marginal propensity to import, 273
Marginal propensity to save, 273
Market efficiency, 165, 165–166
Marshall, Alfred, 244
Marshall-Lerner condition, 244–245, 245f
McGregor, Ewan, 15b
Merchandise, 61–62, 70, 74
Midland Bank, 101
Mid-price, 9
Monetary approach
open economy macroeconomics, 277
for managed floating exchange rate, 285
overview, 279–282
specie-flow mechanism, 278
sterilization, 285–287
sterilized intervention, 287–288
Monetary approach to balance of payments (MABP), 277, 282–284
official settlements balance, 282
policy implications of, 282
PPP and, 282–283
Monetary approach to exchange rates (MAER), 277, 284
adjustment mechanism, 284
determination, extensions to, 291
currency substitution approach, 299–301
“news” approach, 292, 292–293
overshooting approach, 297–298, 299f
portfolio-balance approach, 292, 293–294
standard deviations of prices and exchange rates, 291, 292t
trade balance approach, 294–296, 296f
Monetary policy
under fixed exchange rates, 260–261, 260f
under floating exchange rates, 262–264, 263f
Money market equilibrium (LM curve), See LM curve (money market equilibrium)
Moral hazard situation, 213–214
Mortgage backed security (MBS), 217
Multinational cash management, 176
Multinational firm, financial management of, 173
capital budgeting, 184–186
cash management, 175–178
financial control, 173–175
intrafirm transfers, 182–184, 183t
letter of credit (LOC), 178–180, 179f
irrevocable, 178
revocable, 178
trade financing, 180–182, 181f
Multiplier, open-economy, 273, 274f
Mundell, Robert, 264
Mundell–Fleming model, 264

N

National income and product accounting (NIPA), 71
Natural logarithms, 132–133, 133–134
Net creditor, 77
Net debtor, 77
Netting, 176, 177
New International Macroeconomics, 302, 302, 302–303, 303
New York exchange
dollar and other currencies rate, 13, 13
New York trading, 7
New Zealand dollar (NZD)
LIBOR and, 114
News, 142
role in MAER approach, 292–293
Nominal exchange rates, 149–150
Nominal interest rate, 125
Nonsystematic risk, 194
North American trading, 7
NYSE market capitalization, 114

O

Of the Balance of Trade, 278
Offer, 9
Official settlements balance, 68, 282
Offshore banking, 105
practices, 110–113, 111t, 112t
reasons for, 106–107, 107f
Open economy
macroeconomics, 251
See also Macroeconomics, open economy
innovations, 301–303
IS-LM-BP approach, See IS-LM-BP approach
monetary approach, See Monetary approach
Mundell–Fleming model of, 264
Open-economy multiplier, 273, 274f
Opportunity cost, 256, 297
Optimum currency area, 48–49
Options contract, 99
growth of, 100
Options market, 97–100, 98f
for hedging, 97, 97
in the money, 99
Overshooting approach, MAER and, 297–298, 299f
Over-the-counter (OTC) market, 208
Overvalued currencies, 145–149, 146f

P

Participating forward, 100
Pass through analysis, 238, 240–244, 241t, 242f
Paulson, John, 163b
The Penn World Tables, 147
People’s Bank of China, 37b
Percent per annum, 90–91, 122–123
Perfect capital mobility, 262
Political risk, interest rate parity and, 125
Political uncertainty, key features, 226
Portfolio diversification, 191–195
reasons for incomplete, 195–197
Portfolio investment
capital flight, 204–205
capital inflow issues, 205–206
defined, 66
foreign direct investment (FDI), 201–204
international, 191–192
equity markets, globalization of, 197–201, 198t
opportunities, 197
portfolio diversification, 191–195
reasons for incomplete, 195–197
Portfolio-balance (PB) approach, MAER and, 293–294
Power, logarithms, 132
PPP-adjusted GDP, 147b
Preferred habitat theory, term structure of interest rates, 128
Present value, 185, 189–190
Price changes, relative on PPP, 151–154, 153t
Price index, 136, 136, 136–137, 138, 149
Prices, exchange rates and, 121–122
See also Purchasing power parity (PPP)
Pricing to market, 303
Primary income account, 61–62
Purchasing power parity (PPP), 136
absolute, 136–137
deviations from, 141–145, 143f
inflation and, 140–141
monetary approach and, 282–283
overview, 136
PPP-adjusted GDP, 147b
relative, 139–140
relative price changes on, 151–154, 153t
time period and, 140–141
Put option, 97

R

Real exchange rates, 149–150
Real rate, 125
Relative price changes, 138–139, 139
Relative prices, 233–234
Relative purchasing power parity, 139–140
Rescheduling, debt, 211–212
Reserve assets, defined, 66
Reuters, 5–6, 6–7
Revocable LOC, 178
Risk aversion, 162, 162–163, 163
entrepreneurs and, 163b
Risk lovers/preferrer, 163b
Risk premium, 161–162
Risks
counterparty, 218
systemic, 215
Rogue trader, 15b
Rogue Trader, 15b

S

Scout contract, 101
Secondary income, 61–62
Segmented market, 197–198
Seigniorage, 36
Services, 61–62
Shock, exogenous, 141
Short position in dollars, 14–15, 168
Short-term foreign exchange rate movements, 14–16
Smithsonian agreement, 33–34
Special drawing rights (SDR), 32b–33b, 32t, 282
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
currency holdings and, 294–295
economic disturbance and, 297
Spot market, 10–11, 87, 293
Spot rates, MAER approach and, 292, 293
Spread, 9, 106, 107, 107f
defined, 106
Spurious, deviations
PPP and, 144
Standard deviation (SD), 199–200
“Statistical discrepancy”, 71
Sterilization, 285–287
Sterilized intervention, 287–288
Stock exchanges
deep, 197
thin, 197
Strike price, 97, 98–99
Supply and demand diagram
yen/dollar exchange rate, 17, 17f, 18, 18
Swap period, 90–91
Swap rates, 90
Swaps, 90–94, 93t
Swedish krona (SKR), LIBOR and, 114
Swiss franc (CHF), 8–9
LIBOR and, 114
U.S. dollar rate and, 12, 12, 13
Syndicates of Eurobanks, 113
Systematic risk, 194
Systemic risk, 215

T

Target bands, 41
Taxes
domestic securities, favor of, 196
Technical trading model
foreign exchange rate, forecasting, 168–169
Term structure of interest rates, 127–130, 129f
defined, 127–128
expectations theory, 128
liquidity premium theory, 128
preferred habitat theory, 128
Term structure-exchange rate relationship, 129f, 130
Thin market, 197
Three-point/triangular arbitrage, 12, 13t
Time period, PPP and, 140–141
Tokyo lunch break, trading during, 7
Trade balance approach, MAER and, 294–296, 296f
Trade financing, 180–182, 181f
Trade flow model, 17
Trade-weighted exchange rate indexes, 20–23, 21t, 22f
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
Transfer price, 182
Transition years (1971–1973), 33–34
Translation, 159
Translation exposure, 158
Transparency, lack of
financial crisis and, 214–215
Triangular/three-point arbitrage, 12, 13t
Turner, Ted, 163b
Two-point arbitrage, 11–12

U

UBS bank, 15b
U.K. Northern Rock, 218
Unbiased predictor, 161–162
Undervalued currencies, 145–149, 146f
Unilateral transfers, 61–62
See also Secondary income
United States (US)
Bear Stearns investment bank, 218
capital account transactions, 64–66
current account deficit, 63, 63–64
current account transactions, 65t
foreign debt, 77, 78t
consequences, 77
housing crisis, See Housing sectors, crisis in US
international transactions, 60f
U.S. dollar (USD), 4–5
defined, 29
LIBOR, 114
other currencies rate and, 12, 13, 17, 17f, 18, 18
for two different exchange rate indices, 22, 22f
U.S. Internal Revenue Code, 182

V

Variance, 192–193
Volatile exchange rates, 292, 300

W

Willingness to pay, in BlackRock Sovereign Risk Index, 227
“Window-dressing”
transfer price, 182–183
World Bank, corrupt politicians and, 225
World War I, 28, 77
World War II, 28–29, 34
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