Module 4

3. A theory that nominal interest rates in two or more countries should be equal to the required real rate of return to investors plus compensation for the expected amount of inflation in each country.
5. The concept that if an identical product or service can be sold in two different markets, and no restrictions exist on the sale or transportation costs of moving the product between markets, the product’s price should be the same in both markets.
8. From economic theory, the percentage change in the quantity demanded as a result of a one percent change in the product price.
9. A deposit made as security for a financial transaction otherwise financed on credit.
10. A branch of the Chicago Mercantile Exchange that specializes in trading currency and financial futures contracts.

1. A theory that if the spot exchange rate between two countries starts in equilibrium, any change in the differential rate of inflation between them tends to be offset over the long run by an equal but opposite change in the spot exchange rate.
2. The size of a derivative contract, in total currency value, as used in futures contracts, forward contracts, option contracts, or swap agreements.
4. A position in which foreign currency assets exceed foreign currency liabilities.
6. The potential exposure any individual firm bears that the second party to any financial contract may be unable to fulfill its obligations under the contract’s specifications.
7. A position in which foreign currency assets exceed foreign currency liabilities.