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Commerce 3FA3
Chapter 21: International Corporate Finance
Cross-rate: The implicit exchange rate between two currencies (usually non-US) quoted in some
third currency (usually the US dollars)
Eurobond: International bonds issued in multiple countries but denominated in a single currency
(usually the issuer’s currency)
Eurocurrency: Money deposited in a financial centre outside of the country whose currency is
Export Development Canada (EDC): Federal Crown Corporation that promotes Canadian
exports by making loans to foreign purchasers
Foreign bonds: International bonds issued in a single country, usually denominated in that
country’s currency
Gilts: British and Irish government securities, including issues at local British authorities and
some overseas public-sector offerings
London Interbank Offer Rate (LIBOR): The rate most international banks charge one another
for overnight Eurodollar loans
Swaps: Agreements to exchange 2 securities or currencies
Exchange Rate: The price of ones country’s currency expressed in another country’s currency
Types of Transactions
Spot Trade: An agreement to trade currencies based on the exchange rate today for settlement
in 2 days
Forward Trade: Agreement to exchange currency at some time in the future
Purchasing Power Parity (PPP): The idea that the exchange rate adjusts to keep purchasing
power constant among currencies
Unbiased Forward Rates (UFR): The condition stating that the current forward rate is an
unbiased predictor of the future exchange rate
Uncovered Interest parity (UIP): The condition stating that the expected percentage change in
the exchange rate is equal to the difference in interest rates
International Fisher effect (IFE): The theory that real interest rates are equal across countries
Eurobanks: Banks that make loans and accept deposits in foreign currencies
Note Issuance Facility (NIF): Large borrowers issue notes up to one year in maturity in the
Euromarket. Banks underwrite or sell notes
Counterparty: Second borrower in currency swap. Counterparty borrows funds in currency
desired by principal
American options: A call or put option that can be exercised on or before its expiration date
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