Ôn thi cuối kỳ - TACN3 (Kinh tế và kinh doanh quốc tế) FTU

CHAPTER 5: Foreign Exchange 1. Currency Conversion: Companies use the foreign exchange market to convert one currency into another. 2. Forward contract (hợp đồng kì hạn): a contract requiring the exchange of an agreedupon amount of a currency on an agreed-upon date at a specific exchange rate. 3. The market in which currencies are bought and sold and in which currency prices are determined is called the _______ => Foreign exchange market 4. The practice of insuring against potential losses that result from adverse changes in exchange rates is called _______ => Currency hedging 5. _______ is the instantaneous purchase and sale of a currency in different markets for profit. => Currency arbitrage 6. _______ is the purchase or sale of a currency with the expectation that its value will change and generate a profit. => Currency speculation 7. In a quoted exchange rate, the currency with which another currency is to be purchased is called the _______ => Quoted currency 8. In a quoted exchange rate, the currency that is to be purchased with another currency is called the _______ => Base currency 9. The exchange rate requiring delivery of the traded currency within two business days is called _______ => Spot rate 10. The exchange rate at which two parties agree to exchange currencies on a specified future date is called the _______ => Forward rate 11. _______ is a contract requiring the exchange of an agreed-upon amount of a currency on an agreed-upon date at a specific exchange rate. => Forward contract 12. A _______ is the simultaneous purchase and sale of foreign exchange for two different dates. => Currency swap 13. Currency that trades freely in the foreign exchange market, with its price determined by the forces of supply and demand is called a _______ => convertible currency/ hard currency 14. An international monetary system in which nations linked the value of their paper currencies to specific values of gold was called the _______ => Gold standard 15. A system in which the exchange rate for converting one currency into another is fixed by _______ => Fixed exchange rate system 16. The _______ was an accord among nations to create a new international monetary system based on the value of the U.S. dollar. => Bretton Woods Agreement 17. The agency created by the Bretton Woods Agreement to provide funding for national economic development efforts is called the _______ => World Bank 18. ______ was the agency created by the Bretton Woods Agreement to regulate fixed exchange rates and enforce the rules of the international monetary system. =>The IMF 19. An exchange-rate system in which currencies float against one another with governments intervening to stabilize currencies at a particular target exchange rate is known as a _______ => Managed float system 20. ______ is an exchange - rate system in which currencies float freely against one another, without governments intervening in currency markets. => Free float system 21. The exchange rate at which the bank will buy a currency is called a ______ => Buy rate 22. A _______ is called the exchange rate at which the bank will sell a currency. => Ask rate 23. А ______ is a right, or option, to exchange a specific amount of a currency on a specific date at a specific rate. => Currency option 24. А ______ is a contract requiring exchange of a specific amount of currency on a specific date at a specific exchange rate with all of these conditions fixed and not adjustable => Currency Futures contract ● 4 FUNCTIONS of Foreign exchange? - Currency Conversion: Companies use the foreign exchange market to convert one currency into another - Currency Hedging: Insuring against potential losses resulting from the adverse changes in the exchange rate. - Currency Arbitrage: The instantaneous purchase and sale of a currency for profit - Currency Speculation: The purchase and sale of a currency with the expectation that it will generate profit ● How Foreign exchange market works? - Exchange rate: The rate at which one currency is exchanged for another - Quoting currencies: 2 components of quoted exchange rate: + Quoted Currency: The currency with which another currency is to be purchased + Base Currency: The currency is to be purchased Ex: Exchange 25000 VND for 1$ -> VND will be the quoted currency, the $ will be the base currency. - Spot market: + Spot rate: The exchange rate that requires the delivery of traded currency have to be made within 2 business days + Is the market for currency transaction on the spot + 3 functions of spot market for companies (3 Convert): - Convert the incomes from the sale from the foreign country into their homecountry currency (nước ngoài -> trong nước) - Convert the funds into the currency of the international supplier (đổi sang tiền của nhà cung cấp quốc tế) - Convert the funds into the currency of the country that they wish to invest (đổi sang tiền tệ của nước muốn đầu tư) - Forward market: + Forward rate: The exchange rate that requires 2 parties to exchange on a specified future date + Is the market in which the purchase and sale of a currency are settled on a specific date, on an agreed-upon day + Forward contract: The contract requires the exchange of the currency on a specific exchange rate, on an agreed-upon day - Forward rate > Spot rate -> Currency is traded at a premium - Forward rate < Spot rate -> Currency is traded at a discount - Future market: + Basically the same as Forward market + The difference is that the Future market is more standardized and clearly regulated, while Forward market is more flexible but more risk Currency swap: + The simultaneous purchase and sale of a foreign exchange on different dates - ● Foreign exchange market: - The market at which the prices of the purchase and sale of a currency is determined ● Differences between the spot rate and the forward rate? How each used in the foreign exchange market? - Spot rate: + The exchange rate at which the delivery of the traded currency has to be made within 2 business days. + Normally obtainable by large and foreign exchange brokers - Forward rate: + The exchange rate at which 2 parties agree to exchange on a specified future date + Represent the market’s expectations about the prices of the currency at some point in the future ● Explain the differences between currency swap, options, futures: - Currency swap: The simultaneous purchase and sale of foreign exchange on different days - Currency options: The right, or the option to exchange a specific amount of currency on a specific rate at a specific date - Currency futures contract: The contract that requires the exchange of a specific amount of currency at a specific rate on a specific date, with all conditions fixed and not adjustable CHAPTER 6: Payment in International Trade 1. The mode of payment in which a bank acts as an intermediary without accepting financial risk is called ____ → Documentary collection 2. A document ordering an importer to pay an exporter a specified sum or money at a specified time is called a (an) _____ => Draft (Bill of exchange) 3. The mode of payment in which the importer's bank issues a document stating that the bank will pay the exporter when the exporter fulfills the terms of the document is called a (an) _____ => Letter of Credit/ L/C 4. A contract between the exporter and carrier that specifies destination and shipping costs of the merchandise is called a(n) ______ => Bill of Lading 5. The mode of payment in which an exporter ships merchandise and later bills the importer for its value is called _____ → Open account 6. The mode of payment in which an importer pays an exporter for merchandise before it is shipped. => Advance Payment 7. ______ is a letter of credit calling for renewed credit to be made available when the issuing bank informs the beneficiary that the buyer has reimbursed the issuing bank for the drafts already drawn. => Revolving letter of credit 8. ______ means two letters of credit with identical documentary requirements, except for the difference in the price as shown by the invoice and draft. => Back to back letter of credit 9. _______ is a letter of credit that can be drawn against, but only if another business transaction is not performed. => Standby letter of credit 10. _______ is a letter of credit issued by a bank and forwarded to the beneficiary by a second bank in his area. The second bank validates the signatures and attests to the legitimacy of the first bank. =>Advised letter of credit 11. ________ is a letter of credit issued by one bank to which a second bank adds its commitment to pay. => Confirmed letter of credit 12. ________ is a letter of credit that may be canceled at any moment without prior notice to the beneficiary. => Revocable letter of credit 13. _______ is a letter of credit that cannot be canceled nor amended without agreement of all parties. =>Irrevocable letter of credit 14. _______ is a letter of credit under which the documents are forwarded to the importer's bank, while sight draft is presented at a later future date. => Deferred payment letter of credit 15. ___________ is a letter of credit permitting the beneficiary to receive a sum prior to shipment. => Red clause letter of credit 16. ________ is a letter of credit that can be utilized by someone designated by the original beneficiary. => Transferable letter of credit ● Payment method, from least secure to most secure for the exporter: Open account => bills for collection => documentary letter of credit => advance payment + Open account: Exporter ships the goods to the buyer and just waits until the fixed date as agreed in the contract, requires trust from the exporter to the buyer. + Bills for collection: Negotiable instrument drawn by company/individual presented to the drawee bank for payment + Documentary letter of credit: The documentary issued by a bank in which the bank replaces the buyer (importer) to pay. The exporter will be less worried about not getting paid. The importer than have to reimburse to the bank + Advance payment: Pay the whole/part of the value prior to the shipment of goods ● 4 MODES of payments: - Because international trade poses risks for both importers and exporters - While exporters fear that they might not receive the payment, importers worry they are not able to receive shipment after paying - Hence, a number of modes of payments are designed to reduce the risk, including: + Advance payment + Open account + Documentary collection + Documentary credits 1. What are the roles of banks in four common payment methods? - Active roles: + Involve in the payment process + Supporting both export and import activities + L/C + Check the accuracy and legitimacy of documents + Guarantee payments - Passive roles: + Transfer documents and funds + Documentary collection (Transfer documents and collect funds with no guarantee) + Open account (process payment after goods received) + Advance payment (transfer funds before shipment) 2. What are the risks faced by exporters in the 4 common payment methods? - Open account: + No guarantee that they will be paid + Lose control of the goods - Documentary collection: + Importer may fail to accept the bill of exchange + Importer may dishonour the bill of exchange at maturity + May have to ship the goods back home - Letter of credit: + Few risks