|Exchange rate risk|
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Definition of Exchange rate risk
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
Related: exchange rate risk
the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.
Schedule of depreciation rates allowed for tax purposes.
Any depreciation method that produces larger deductions for depreciation in the
A strategy that uses available information and forecasting techniques to seek a
Publicly traded issues that may be collateralized by mortgages and MBSs.
Money after-tax rate of return minus the inflation rate.
The discount rate that reflects only the business risks of a project and abstracts from the
The second-largest stock exchange in the United States. It trades
Swap in which the principal or national amount rises (falls) as interest rates
The periodic rate times the number of periods in a year. For example, a 5%
Arithmetic mean return.
Floating rate preferred stock, the dividend on which is adjusted every
The ratio of the average cash inflow to the amount invested.
Taxes as a fraction of income; total taxes divided by total taxable income.
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
A strategy in which the maturities of the securities included in the portfolio are concentrated
Base interest rate
Related: Benchmark interest rate.
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
Benchmark interest rate
Also called the base interest rate, it is the minimum interest rate investors will
Bill of exchange
General term for a document demanding payment.
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering
Broker loan rate
Related: Call money rate.
A strategy in which a portfolio is constructed so that the maturities of its securities are highly
The risk that the cash flow of an issuer will be impaired because of adverse economic
A passive investment strategy with no active buying and selling of stocks from the
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
Chicago Mercantile Exchange (CME)
A not-for-profit corporation owned by its members. Its primary
A strategy in which a put and with the same strike price and expiration are either both
The risk that a foreign debtor will be unable to pay its debts because of business events,
Commodities Exchange Center (CEC)
The location of five New York futures exchanges: Commodity
Related: Unsystematic risk
The risk that a project will not be brought into operation successfully.
A firm engaged in two or more unrelated businesses.
A merger involving two or more firms that are in unrelated businesses.
Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the
The acquisition of one firm by anther firm.
Debt obligations issued by corporations.
A legal document creating a corporation.
One of the three areas of the discipline of finance. It deals with the operation of the firm
Corporate financial management
The application of financial principals within a corporation to create and
Corporate financial planning
Financial planning conducted by a firm that encompasses preparation of both
Corporate processing float
The time that elapses between receipt of payment from a customer and the
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes
Corporate taxable equivalent
rate of return required on a par bond to produce the same after-tax yield to
The risk that the other party to an agreement will default. In an options contract, the risk
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
Covered call writing strategy
A strategy that involves writing a call option on securities that the investor
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
The interest rate offered on an investment type insurance policy.
The exchange rate between two currencies expressed as the ratio of two foreign exchange rates
Refers to the volatility of returns on international investments caused by events associated
The return at which two alternative projects have the same net present value.
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Current rate method
Under this currency translation method, all foreign currency balance-sheet and income
Refers to multi-period cash flow matching.
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
The interest rate that the Federal Reserve charges a bank to borrow funds when a bank is
Related: unsystematic risk.
The fixed or floating rate paid on preferred stock based on par value.
Dollar-weighted rate of return
Also called the internal rate of return, the interest rate that will make the
In project financing, the risk that the project's output will not be salable at a price that will
Effective annual interest rate
An annual measure of the time value of money that fully reflects the effects of
A measure of the time value of money that fully reflects the effects of compounding.
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the
Equilibrium rate of interest
The interest rate that clears the market. Also called the market-clearing interest
The risk that the ability of an issuer to make interest and principal payments will change because
The marketplace in which shares, options and futures on stocks, bonds, commodities and indices
A nickname for the New York stock exchange. Also known as the Big Board. More than
Governmental restrictions on the purchase of foreign currencies by domestic citizens or
Exchange of assets
Acquisition of another company by purchase of its assets in exchange for cash or stock.
Exchange of stock
Acquisition of another company by purchase of its stock in exchange for cash or shares.
An offer by the firm to give one security, such as a bond or preferred stock, in exchange for
The price of one country's currency expressed in another country's currency.
Exchange Rate Mechanism (ERM)
The methodology by which members of the EMS maintain their
The variability of a firm's value that results from unexpected exchange rate changes or the
Security that grants the security holder the right to exchange the security for the
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
Federal funds rate
This is the interest rate that banks with excess reserves at a Federal Reserve district bank
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
See:diversifiable risk or unsystematic risk.
A country's decision to tie the value of its currency to another country's currency, gold
A loan on which the rate paid by the borrower is fixed for the life of the loan.
In an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a
Flat price risk
Taking a position either long or short that does not involve spreading.
Floating exchange rate
A country's decision to allow its currency value to freely change. The currency is not
A guaranteed investment contract where the credit rating is tied to some variable
Floating-rate note (FRN)
Note whose interest payment varies with short-term interest rates.
In an interest rate swap, the counterparty who pays a rate based on a reference rate,
Preferred stock paying dividends that vary with short-term interest rates.
Force majeure risk
The risk that there will be an interruption of operations for a prolonged period after a
Currency from another country.
Foreign exchange controls
Various forms of controls imposed by a government on the purchase/sale of
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