Korea Certified International Finance Specialist flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Covered Interest Parity

A no-arbitrage condition stating that the forward exchange rate reflects the interest rate differential between two currencies, so a hedged investment earns the same return in either currency.

Mundell-Fleming Trilemma

The principle that an economy cannot simultaneously have a fixed exchange rate, free capital mobility, and independent monetary policy; it must give up at least one of the three.

Eurobond

A bond issued in a country outside the issuer's home country and denominated in a currency other than the issuer's domestic currency, allowing access to a broader investor base.

Balance of Payments Identity

An accounting identity stating that the current account plus the capital account plus the financial account plus net errors and omissions must sum to zero.

Cross Rate

An exchange rate between two currencies derived from their respective rates against a common third currency, calculated by multiplying or dividing the quoted pairs.

Transaction Exposure

The risk that exchange rate changes affect the value of known foreign-currency cash flows from existing contracts, such as receivables or payables.

Translation Exposure

The risk that exchange rate changes affect the reported value of foreign subsidiaries' assets, liabilities, and earnings when consolidated into the parent's financial statements.

Money Market Hedge

A hedging technique that borrows or lends in the foreign currency and converts at the spot rate, replicating the effect of a forward contract.

Letter of Credit

A bank's irrevocable undertaking to pay a beneficiary against presentation of documents complying strictly with the credit terms, substituting bank credit for buyer credit.

Incoterms FOB

A trade term under which the seller delivers goods on board the vessel at the named port and risk transfers to the buyer at that point.

Documentary Collection

A trade settlement method in which banks handle documents and release them against payment or acceptance, without guaranteeing payment to the exporter.

Forfaiting

The non-recourse purchase of medium- to long-term export receivables, typically evidenced by accepted drafts or promissory notes, at a discount.

Banker's Acceptance

A time draft drawn on and accepted by a bank, which becomes a negotiable instrument backed by the accepting bank's creditworthiness.

Firm Commitment Underwriting

An arrangement in which the underwriter buys the entire issue from the issuer and resells it, bearing the risk that the securities cannot be sold at the offering price.

Rule 144A

A U.S. securities exemption permitting resale of restricted securities to qualified institutional buyers without public registration, widely used in cross-border capital raising.

American Depositary Receipt

A negotiable certificate issued by a depositary bank representing shares of a foreign company, allowing U.S. investors to trade the shares in dollars.

Weighted Average Cost of Capital

The blended cost of a firm's equity and after-tax debt, weighted by their market value proportions, used as the discount rate for projects of average risk.

Capital Asset Pricing Model

A model stating that expected return equals the risk-free rate plus beta times the market risk premium, where beta measures systematic risk.

Sharpe Ratio

A risk-adjusted performance measure calculated as excess return over the risk-free rate divided by the standard deviation of returns.

Efficient Frontier

The set of portfolios offering the highest expected return for each level of risk, given the available assets and their correlations.

Tracking Error

The standard deviation of the difference between a portfolio's returns and its benchmark's returns, measuring how closely the portfolio follows the benchmark.

Put-Call Parity

A no-arbitrage relationship for European options stating that a call minus a put equals the stock price minus the present value of the strike price.

Interest Rate Swap

An agreement to exchange fixed-rate and floating-rate interest payments on a notional principal, used to manage interest rate exposure.

Credit Default Swap

A contract in which the protection buyer pays a periodic premium and receives compensation if a specified credit event occurs on a reference entity.

Special Purpose Vehicle

A bankruptcy-remote entity that holds pooled assets in a securitization, isolating them from the originator's creditors and issuing tranched securities to investors.

Basel III Capital Buffer

A framework requiring common equity tier 1 capital of at least 4.5% of risk-weighted assets plus a 2.5% capital conservation buffer.

Liquidity Coverage Ratio

A Basel III standard requiring banks to hold high-quality liquid assets sufficient to cover net cash outflows over a 30-day stress period.

Suspicious Transaction Report

A filing that financial institutions must submit to the financial intelligence unit when they suspect funds are linked to money laundering or terrorist financing.

Market Manipulation

Conduct that artificially distorts the price or trading volume of securities, such as wash trades or spoofing, and is prohibited under securities law.

Bank of Korea Base Rate

The policy interest rate set by the Bank of Korea's Monetary Policy Board, serving as the benchmark for short-term market rates.

Market Average Rate

The benchmark exchange rate for the Korean won, calculated from interbank quotes and published to settle onshore foreign exchange transactions.

Foreign Exchange Position Limit

A regulatory cap on a bank's net foreign-currency forward position relative to its capital, used to limit speculative and maturity-mismatch risk.