Lesson+5

=Lesson 5 - Chapter 7: Foreign Exchange and International Finance=



Important Terms for this Chapter

 * Account Payable:** Amount owed to a supplier
 * Account Receivable:** Amount owed by a customer to a company that sells on credit
 * Bill of Exchange**: A written order by an exporter to an importer to make a payment
 * Bond:** A certificate representing money borrowed by a company over a long period of time
 * Capital Project:** An expenseive, long-term financial activity
 * Commercial Invoice:** A certificate prepared by the exporter that provides a description of the merchangise and the terms of the sale
 * Credit Terms:** Conditions of a sale on account including the time required for payment
 * Currency Future:** A contract a person or company buys that allows the buyer the option to purchase a foreign currency sometime in the future at today's rate
 * Exchange Controls:** Government restrictions to regulate the amount and value of a nation's currency.
 * Exchange Rate:**The amount of currency of one courntry that can be traded for one unit of the currency of another country
 * Floating Exchange Rate:** System in which currency values are based on supply and demand
 * Foreign Exchange:** The process of converting the currency of one country into the currency of another country
 * Foreign Exchange Market:** The network of banks and other financial institutions that buy and sell different currencies
 * Hard Currency:** A monetary unit that is freely converted into other currencies
 * Insurance Certificate:** A certificate explaining the amount of insurance coverage for fire, theft, water, or other damage that may occur to goods in shipment
 * Interest Rate:** The cost of using someone else's money
 * International Monetary Fund:** An agency that helps to promote economic cooperation by maintaining an orderly system of world trade and exchange rates
 * Letter of Credit:** A financial document issued by a bank for an importer in which the bank guarantees payment
 * Money:** Anything people will accept for the exchange of goods and services
 * Promissory Note:** A document that states a promise to pay a set amount by a certain date
 * Soft Currency:** A currency that is not easy to exchange for other currencies
 * Trade Credit:** Buying or selling on account
 * World Bank:** A bank whose major function is to provide economic assistance to less-developed countries

Chapter Summary:

 * Money has five characteristics: acceptability, scarcity, durability, dvisibility, and portability. The purpose of money is that is servies as a medium of exchange, a measure of value, and a store of value.
 * A country's balance of payments, economic conditions, and political stability influence the value of money. Money supply and demand, inflation, and risk affect interest rates.
 * Foreign exchange involves the process of exchanging one currency for another in the foreign exchange market. This market concists of banks and other financial institutions that buy and sell different currencies.
 * The main activity of the World Band is to provide economic assistance to less developed countries. The International Monetary Fund helps to promote economic cooperation among countries by maintaining an orderly system of world trade and exchange rates.
 * Cash in advance, a letter of credit, and sale on account are the main payment methods for international business. The main financing sources for international business transactions are tade credit, bank loans, and bonds.
 * Common apyment methods and financial documents used in international trade include the promissory note, bill of exchange, electronic funds transfer (EFT), commercial invoice, and insurance certificate.