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The Market for Foreign Exchange, Int. Parity Relationship, Int. Capital Markets and the Cost of Capital

7 important questions on The Market for Foreign Exchange, Int. Parity Relationship, Int. Capital Markets and the Cost of Capital

What is the difference between a long and a short forward position?

The long position holder is the buyer of the contract and the short position holder is the seller of the contract (investopedia).

What are non-deliverable forward contracts?

(pag 303)

What is an exchange-traded fund?

An exchange-traded fund (ETF) is a portfolio of financial assets in which shares representing fractional ownership of the fund trade on an organized exchange. Like mutual funds, ETFs allow small investors the opportunity to invest in portfolios of financial assets that they would find difficult to construct individually (pag 309).

What do point C and D on the picture tell you?

When there is an arbitrage profit or not, taking transaction cost into account. C falls outside of the IRP line and band, which means that arbitrage is possible and D does not.

According to scientific literature PPP has a lot of negative results regarding the explanation of exchange rates, what can be a valid reason?

Tarif costs, quotas, taxes etc. influences the decisions for people if they will rather buy from another place, as it lowers the changes of international trading (330).

What is the technical approach, one of the forecasting techniques?

The technical approach first analyzes the past behavior of exchange rates for the purpose of identifying "patterns" and then projects them into the future to generate forecasts. Clearly, the technical approach is based on the premise that history repeats itself.

Despite the potential benefits, not every company seeks overseas listings because of the costs, name four:

1. It can be costly to meet the disclosure and listing requirements imposed by the foreign exchange and regulatory authorities. 2. Controlling insiders may find it difficult to continue to derive private benefits once the company is cross-listed on foreign exchanges. 3. Once a company's stock is traded in overseas markets, there can be volatility spillover from those markets. 4. Once a company's stock is made available to foreigners, they might acquire a controlling interest and challenge the domestic control of the company.

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International Financial Management

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The Market for Foreign Exchange, Int. Parity Relationship, Int. Capital Markets and the Cost of Capital

7 important questions on The Market for Foreign Exchange, Int. Parity Relationship, Int. Capital Markets and the Cost of Capital

What is the difference between a long and a short forward position?

What are non-deliverable forward contracts?

What is an exchange-traded fund?

What do point C and D on the picture tell you?

According to scientific literature PPP has a lot of negative results regarding the explanation of exchange rates, what can be a valid reason?

What is the technical approach, one of the forecasting techniques?

Despite the potential benefits, not every company seeks overseas listings because of the costs, name four:

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