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Definition of Exchange risk
The variability of a firm's value that results from unexpected exchange rate changes or the
The risk that a long or short position in a foreign currency might have to be closed out
Also called currency risk, the risk of an investment's value changing because of currency
A portfolio manager invests dollars in an instrument denominated in a foreign
A process whereby two companies in different countries borrow each other's currency for a
The second-largest stock exchange in the United States. It trades
The amount of total risk that can be eliminated by diversification by
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
risk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio.
General term for a document demanding payment.
The risk that the cash flow of an issuer will be impaired because of adverse economic
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
A not-for-profit corporation owned by its members. Its primary
The risk that a foreign debtor will be unable to pay its debts because of business events,
The location of five New York futures exchanges: Commodity
Related: Unsystematic risk
See asset-specific risk
The risk that a project will not be brought into operation successfully.
Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the
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
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
Financial and moral risk that an obligation will not be paid and a loss will result.
Refers to the volatility of returns on international investments caused by events associated
Related: exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
Related: unsystematic risk.
In project financing, the risk that the project's output will not be salable at a price that will
Effective Exchange Rate
The weighted average of several exchange rates, where the weights are determined by the extent of our trade done with each country.
Equation of Exchange
The quantity theory equation Mv = PQ.
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the
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
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.
Amount of one currency needed to purchase one unit of another.
Exchange Rate Mechanism (ERM)
The methodology by which members of the EMS maintain their
Exchange Rate, Nominal
The price of one currency in terms of another, in this book defined as number of units of foreign currency per dollar.
Exchange Rate, Real
The nominal exchange rate corrected for price level differences.
Security that grants the security holder the right to exchange the security for the
expectations theory of exchange rates
Theory that expected spot exchange rate equals the forward rate.
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
risk to shareholders resulting from the use of debt.
See:diversifiable risk or unsystematic risk.
A country's decision to tie the value of its currency to another country's currency, gold
Fixed Exchange Rate
An exchange rate held constant by a government promise to buy or sell dollars at the fixed rate on the foreign exchange market.
Flat price risk
Taking a position either long or short that does not involve spreading.
Flexible Exchange Rate
An exchange rate whose value is determined by the forces of supply and demand on the foreign exchange market.
Floating exchange rate
A country's decision to allow its currency value to freely change. The currency is not
Floating Exchange Rate
See flexible exchange rate.
Force majeure risk
The risk that there will be an interruption of operations for a prolonged period after a
Currency from another country.
The currency of a foreign country.
Foreign exchange controls
Various forms of controls imposed by a government on the purchase/sale of
Foreign exchange dealer
A firm or individual that buys foreign exchange from one party and then sells it to
Foreign Exchange Market
A worldwide market in which one country's currency is bought or sold in exchange for another country's currency.
Foreign Exchange Reserves
A fund containing the central bank's holdings of foreign currency or claims thereon.
Foreign exchange swap
An agreement to exchange stipulated amounts of one currency for another currency
Forward Exchange Market
A market in which foreign exchange can be bought or sold for delivery (and payment) at some specified future date but at a price agreed upon now.
Forward exchange rate
exchange rate fixed today for exchanging currency at some future date.
forward rate of exchange
exchange rate for a forward transaction.
Related: interest rate risk
risk that arises when an issuer has policies concentrated within certain geographic areas,
Gold exchange standard
A system of fixing exchange rates adopted in the Bretton Woods agreement. It
The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk.
High-Risk Small Business
Firm viewed as being particularly subject to risk from an investors perspective.
Historical exchange rate
An accounting term that refers to the exchange rate in effect when an asset or
Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words,
Also called purchasing-power risk, the risk that changes in the real return the investor will
The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Interest Rate Risk
Possibility that interest rates will rise during the term of a loan thereby increasing the annual cost of borrowing.
judgmental method (of risk adjustment)
an informal method of adjusting for risk that allows the decision maker
The risk that arises from the difficulty of selling an asset. It can be thought of as the difference
London International Financial Futures Exchange (LIFFE)
A London exchange where Eurodollar futures
London International Financial Futures Exchange (LIFFE)
London exchange where Eurodollar futures as well as futures-style options are traded.
Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The
risk that cannot be diversified away. Related: systematic risk
The amount of total risk that cannot be eliminated by portfolio
Economywide (macroeconomic) sources of risk that affect the overall stock market. Also called systematic risk.
The part of security's risk that cannot be eliminated by diversification. It is measured by the beta coefficient.
market risk premium
risk premium of market portfolio. Difference between market return and return on risk-free Treasury bills.
Medium of Exchange
Any item that can be commonly exchanged for goods and services.
The risk associated with taking applications from prospective mortgage borrowers
New York Stock Exchange (NYSE)
Also known as the Big Board or The Exhange. More than 2,00 common
Nominal exchange rate
The actual foreign exchange quotation in contrast to the real exchange rate that has
risk that cannot be eliminated by diversification.
Nonmarket or firm-specific risk factors that can be eliminated by diversification. Also
The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is
operating risk (business risk)
risk in firm’s operating income.
A securities marketplace wherein purchasers and sellers regularly gather to trade
Overnight delivery risk
A risk brought about because differences in time zones between settlement centers
Philadelphia Stock Exchange (PHLX)
A securities exchange where American and European foreign
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