Seminar. Global Foreign Exchange Markets Chapter 9. Copyright 2013 Pearson Education. 20 Kasım 13 Çarşamba

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Seminar. Global Foreign Exchange Markets Chapter 9. Copyright 2013 Pearson Education. 20 Kasım 13 Çarşamba"

Transcription

1 Seminar Global Foreign Exchange Markets Chapter 9 9-

2 Learning Objectives To learn the fundamentals of foreign exchange To identify the major characteristics of the foreign-exchange market and how governments control the flow of currencies across national borders To describe how the foreign-exchange market works To examine the different institutions that deal in foreign exchange To understand why companies deal in foreign exchange 9-

3 Chapter 10 The Determination of Exchange Rates 10-

4 Learning Objectives To describe the International Monetary Fund and its role in the determination of exchange rates To discuss the major exchange-rate arrangements that countries use To explain how the European Monetary System works and how the euro became the currency of the euro zone To identify the major determinants of exchange rates To show how managers try to forecast exchangerate movements To explain how exchange rate movements influence business decisions 10-

5 Activities Chapter 9 DOES GEOGRAPHY MATTER? Foreign-Exchange Trades Even though the U.S. dollar is the most widely traded currency in the world, some trading centers outside the U.S. are very important in the global currency trade. London, for example, is a major trading center because it is close to the major capital markets in Europe and is in a time zone that straddles the other major markets in Asia and the U.S. Despite the fact that the currency market is a 24-hour market, the heaviest volumes of trade are concentrated in the hours when Asia and Europe are open or when Europe and the U.S. are open. Also, prices tend to be better when markets are active and liquid. [See Map 9.1 and Fig 9.3] POINT COUNTERPOINT: Is it OK to Speculate on Currency? LOOKING TO THE FUTURE: Where Are Foreign-Exchange Markets Headed? The speed at which transactions are processed and information is transmitted globally will continue to lead to greater efficiencies and more opportunities in foreign exchange markets. Companies costs of trading foreign exchange should come down and they should gain faster access to more currencies. Government exchange restrictions should diminish as currency markets are liberalized. As the euro continues to solidify its position in Europe, it will reduce exchange-rate volatility and should lead to the euro taking some of the pressure off the dollar so that it is no longer the only major vehicle currency in the world. The growth of Internet trades in currency will take away some of the market share of dealers and allow more entrants in the foreign-exchange market. Internet trade will also increase currency price transparency and increase the ease of trading. 9-

6 Activities chapter 10 POINT COUNTERPOINT: Should Africa Develop a Common Currency? CLOSING CASE: Welcome to the World of Sony Unless the Yen Keeps Rising See handouts. 9-

7 Introduction - Chapter 9 Learning Objective 1: To learn the fundamentals of foreign exchange 9-

8 What Is Foreign Exchange? Foreign exchange money denominated in the currency of another nation or group of nations Foreign exchange market where foreign exchange transactions take place Exchange rate the price of a currency 9-

9 Players On The Foreign Exchange Market Learning Objective 2: To identify the major characteristics of the foreign-exchange market and how governments control the flow of currencies across national borders 9-

10 Players On The Foreign Exchange Market The Bank for International Settlements (BIS) divides the market into Reporting dealers Financial institutions Nonfinancial institutions 9-

11 Players On The Foreign Exchange Market Foreign Exchange Markets: Turnover by Counterparty 9-

12 How To Trade Foreign Exchange Learning Objective 3: To describe how the foreign-exchange market works 9-

13 How To Trade Foreign Exchange Dealers can trade foreign exchange Using electronic methods (41.3%) Directly with customers (24.3%) Through the interbank market (18.5%) Through voice brokers (15.9%) 9-

14 Some Aspects Of The Foreign Exchange Market The foreign exchange market has two segments OTC commercial and investment banks Securities exchanges 9-

15 Global OTC Foreign Exchange Instruments Global OTC foreign exchange instruments include Spot transactions Outright forward transactions FX swap Currency swaps Options Futures contracts 9-

16 Global OTC Foreign Exchange Instruments Foreign Exchange Markets: Turnover by Instrument 9-

17 Size, Composition, and Location of the Foreign Exchange Market Market size is $4 trillion daily the U.S. dollar is the most important currency on the foreign-exchange market London is the main foreign exchange market in the world The most commonly traded currency pairs are EUR/USD and USD/JPY 9-

18 Size, Composition, and Location of the Foreign Exchange Market Foreign Exchange Markets: Average Daily Volume

19 Size, Composition, and Location of the Foreign Exchange Market Global Foreign Exchange: Currency Distribution 9-

20 Size, Composition, and Location of the Foreign Exchange Market Foreign Exchange Markets: Geographic Distribution 9-

21 Major Foreign Exchange Markets Foreign exchange dealers quote rates Bid (buy) rate the rate at which traders buy foreign exchange Offer (sell) rate the rate at which traders sell foreign exchange Spread the difference between bid and offer rates 9-

22 Major Foreign Exchange Markets American terms (direct quote) the number of dollars per unit of foreign currency European terms (indirect quote) the number of units of foreign currency per dollar Base currency Terms currency 9-

23 The Forward Market Forward discounts when the forward rate is less than the spot rate Forward premiums Option when the forward rate is greater than the spot rate the right, but not the obligation, to trade a foreign currency at a specific exchange rate Futures specifies an exchange rate in advance of the actual exchange of currency not as flexible as a forward contract 9-

24 The Foreign Exchange Trading Process The Foreign Exchange Trading Process 9-

25 Banks And Exchanges The top banks in the inter-bank market in foreign exchange can trade in specific market locations engage in major currencies and cross-trades deal in specific currencies handle derivatives forwards, options, futures, swaps conduct key market research 9-

26 Banks And Exchanges Foreign Exchange Trades: Top Commercial Banks, 2011 Ranked by Overall Market Share 9-

27 Top Exchanges For Trading Foreign Exchange Three of the best-known exchanges are the Chicago Mercantile Exchange (CME) Group the NASDAQ OMX the NYSE Liffe 9-

28 How Companies Use Foreign Exchange Learning Objective 5: To understand why companies deal in foreign exchange 9-

29 How Companies Use Foreign Exchange Import and export cash flow options Commercial bills of exchange sight draft time draft Letters of credit confirmed letter of credit 9-

30 How Companies Use Foreign Exchange Other financial flows for business Speculation buying or selling of a foreign currency that has an element of risk and a chance of great profits Arbitrage the buying and selling of foreign currencies at a profit due to price discrepancies interest arbitrage 9-

31 Where Are Foreign Exchange Markets Headed? More efficient markets create more opportunities for foreign exchange trading lower costs Financial crisis in Europe future of the euro Rise of the Chinese yaun and Brazilian real Technology developments more electronic trades 9-

32 9-

33 Chapter 10 The Determination of Exchange Rates 10-

34 Learning Objectives To describe the International Monetary Fund and its role in the determination of exchange rates To discuss the major exchange-rate arrangements that countries use To explain how the European Monetary System works and how the euro became the currency of the euro zone To identify the major determinants of exchange rates To show how managers try to forecast exchangerate movements To explain how exchange rate movements influence business decisions 10-

35 Introduction Learning Objective 1: To describe the International Monetary Fund and its role in the determination of exchange rates 10-

36 The International Monetary Fund The goals of the International Monetary Fund (IMF) are to ensure stability in the international monetary system promote international monetary cooperation and exchange-rate stability facilitate the balanced growth of international trade provide resources to help members in balanceof-payments difficulties or to assist with poverty reduction 10-

37 The International Monetary Fund The Bretton Woods Agreement established a par value, or benchmark value, for each currency initially quoted in terms of gold and the U.S. dollar The dollar became the world benchmark for trading currencies and continues in that role today 10-

38 The Quota System The IMF Today every member contributes a quota Assistance Programs the IMF lends money to ease balance-ofpayments difficulties Special drawing rights (SDRs) the IMF s unit of account 10-

39 The Global Financial Crisis and the IMF The global crisis in raised concerns over global liquidity prompted the G20 to inject huge amounts of cash into the IMF Greece s financial crisis required assistance from the IMF and the EU the IMF required Greece to adopt very unpopular austerity measures 10-

40 Evolution to Floating Exchange Rates The Smithsonian Agreement 8% devaluation of the dollar revaluation of other currencies widening of exchange rate flexibility The Jamaica Agreement provided greater exchange rate flexibility eliminated the use of par values 10-

41 Exchange Rate Arrangements Under the Jamaica Agreement countries selected and maintained their own exchange rate arrangements The IMF monitors the exchange rate policies of countries to see if they are acting openly and responsibly 10-

42 Exchange Rate Arrangements Exchange Rate Arrangements and Anchors 10-

43 Three Choices: Hard Peg, Soft Peg, or Floating Learning Objective 2: To discuss the major exchange rate arrangements that countries use 10-

44 Three Choices: Hard Peg, Soft Peg, or Floating The IMF classifies currencies into three categories Hard peg 12.2% of total value is locked into something and does not change dollarization currency boards Soft peg 45.7% of total more flexible than hard peg Floating 42.1% of total floating or freely floating 10-

45 The Euro Learning Objective 3: To explain how the European Monetary System works and how the euro became the currency of the euro zone 10-

46 The Euro The European Monetary System (EMS) established to create exchange rate stability within the European Community European Monetary Union (EMU) outlined the criteria for euro applicants the U.K., Sweden, and Denmark opted not to adopt the euro The European Central Bank (ECB) sets monetary policy for the adopters of the euro 10-

47 Determining Exchange Rates Learning Objective 4: To identify the major determinants of exchange rates 10-

48 Determining Exchange Rates Currency in a floating rate world demand for a country s currency is a function of the demand for that country s goods and services and financial assets 10-

49 Determining Exchange Rates The Equilibrium Exchange Rate and How it Moves 10-

50 Determining Exchange Rates Currency in a fixed rate or managed floating rate world Role of central banks reserve assets intervening in the market attitudes toward intervention The Bank for International Settlements (BIS) the central banks bank coordinates central bank intervention 10-

51 Black Markets A black market closely approximates a price based on supply and demand for a currency instead of a government controlled price 10-

52 Foreign Exchange Convertibility and Controls Hard currencies U.S. dollar, euro, British pound, Japanese yen Soft currencies developing countries Countries can control convertibility through licenses multiple exchange rate systems advance import deposits quantity controls 10-

53 Exchange Rates and Purchasing Power Parity Purchasing power parity (PPP) a change in relative inflation between two countries must cause a change in exchange rates to keep the prices of goods in the countries fairly similar The Big Mac Index 10-

54 Exchange Rates and Interest Rates The Fisher Effect links inflation and interest rates The International Fisher Effect (IFE) links interest rates and exchange rates Other Factors in Exchange Rate Determination confidence information 10-

55 Forecasting Exchange Rate Movements Learning Objective 5: To show how managers try to forecast exchange-rate movements 10-

56 Fundamental and Technical Forecasting Forecasting exchange rates Fundamental forecasting uses trends in economic variables to predict future rates Technical forecasting uses past trends in exchange rates to spot future trends Biases can skew forecasts Timing, direction, and magnitude of exchange rate movements are important to consider 10-

57 Fundamental Factors to Monitor Monitor The institutional setting Fundamental analyses Confidence factors Events Technical analyses 10-

58 Business Implications of Exchange Rate Changes Learning Objective 6: To explain how exchange rate movements influence business decisions 10-

59 Business Implications of Exchange Rate Changes Marketing Decisions when the value of a country s currency rises, exporting becomes more difficult as the product becomes more expensive in foreign markets Production Decisions might locate production in a weak currency country because the initial investment is cheap and it will make a good base for exports Financial Decisions currency rates influence sourcing, cross-border remittance of funds, and the reporting of financial results 10-

60 The Future: The Dollar, The Europe Euro, The Yen, The Yuan the euro should take market share away from the dollar as the prime reserve asset assuming the problems in Greece and other countries are controlled Asia China is moving forward to establish the yuan as a major world currency Latin America emerging market currencies should strengthen as commodity prices recover 10-

OBJECTIVES CHAPTER OVERVIEW CHAPTER OUTLINE SEMINAR 28 NOV 2013

OBJECTIVES CHAPTER OVERVIEW CHAPTER OUTLINE SEMINAR 28 NOV 2013 OBJECTIVES To learn the fundamentals of foreign exchange To identify the major characteristics of the foreign-exchange market and how governments control the flow of currencies across national borders

More information

Foreign Exchange markets and international monetary arrangements

Foreign Exchange markets and international monetary arrangements Foreign Exchange markets and international monetary arrangements Ruichang LU ( 卢 瑞 昌 ) Department of Finance Guanghua School of Management Peking University Some issues on the course arrangement Professor

More information

CURRENCY TRADER. Currency Trading. Introduction to currency futures. What are currency futures?

CURRENCY TRADER. Currency Trading. Introduction to currency futures. What are currency futures? Introduction to currency futures The South African Rand is one of the most volatile currencies in the world; it can exhibit moves of greater than 0.20c in a single day of trading versus the US dollar.

More information

The foreign exchange market is global, and it is conducted over-the-counter (OTC)

The foreign exchange market is global, and it is conducted over-the-counter (OTC) FOREIGN EXCHANGE BASICS TERMS USED IN FOREX TRADING: The foreign exchange market is global, and it is conducted over-the-counter (OTC) through the use of electronic trading platforms, or by telephone through

More information

Foreign Exchange Market INTERNATIONAL FINANCE. Function and Structure of FX Market. Market Characteristics. Market Attributes. Trading in Markets

Foreign Exchange Market INTERNATIONAL FINANCE. Function and Structure of FX Market. Market Characteristics. Market Attributes. Trading in Markets Foreign Exchange Market INTERNATIONAL FINANCE Chapter 5 Encompasses: Conversion of purchasing power across currencies Bank deposits of foreign currency Credit denominated in foreign currency Foreign trade

More information

Theories of Exchange rate determination

Theories of Exchange rate determination Theories of Exchange rate determination INTRODUCTION By definition, the Foreign Exchange Market is a market 1 in which different currencies can be exchanged at a specific rate called the foreign exchange

More information

The foreign exchange and derivatives markets in Hong Kong

The foreign exchange and derivatives markets in Hong Kong The foreign exchange and derivatives markets in Hong Kong by the Banking Supervision Department The results of the latest triennial global survey of turnover in the markets for foreign exchange (FX) and

More information

Slides for Krugman and Obstfeld Chapter 13

Slides for Krugman and Obstfeld Chapter 13 Slides for Krugman and Obstfeld Chapter 13 Alan G. Isaac American University 2010-09-10 Preview Introduction to Exchange Rates Introductory Concepts International Financial Markets Basics exchange rate

More information

International Finance Prof. A. K. Misra Department of Management Indian Institute of Technology, Kharagpur

International Finance Prof. A. K. Misra Department of Management Indian Institute of Technology, Kharagpur International Finance Prof. A. K. Misra Department of Management Indian Institute of Technology, Kharagpur Lecture - 7 Features of Foreign Exchange Market Good morning, today we will discuss features of

More information

NEW TO FOREX? FOREIGN EXCHANGE RATE SYSTEMS There are basically two types of exchange rate systems:

NEW TO FOREX? FOREIGN EXCHANGE RATE SYSTEMS There are basically two types of exchange rate systems: NEW TO FOREX? WHAT IS FOREIGN EXCHANGE Foreign Exchange (FX or Forex) is one of the largest and most liquid financial markets in the world. According to the authoritative Triennial Central Bank Survey

More information

The Danish Foreign-Exchange Market

The Danish Foreign-Exchange Market 33 The Danish Foreign-Exchange Market by Henrik Smed Krabbe, Market Operations Department and Lisbeth Stausholm Pedersen, Economics Department The foreign-exchange market is a market for purchase and sale

More information

Chapter 14 Foreign Exchange Markets and Exchange Rates

Chapter 14 Foreign Exchange Markets and Exchange Rates Chapter 14 Foreign Exchange Markets and Exchange Rates International transactions have one common element that distinguishes them from domestic transactions: one of the participants must deal in a foreign

More information

Ch. 6 The Foreign Exchange Market. Foreign Exchange Markets. Functions of the FOREX Market

Ch. 6 The Foreign Exchange Market. Foreign Exchange Markets. Functions of the FOREX Market Ch. 6 The Foreign Exchange Market Topics FOREX (or FX) Markets FOREX Transactions FOREX Market Participants FOREX Rates & Quotations Cross Rates and Arbitrage Foreign Exchange Markets The FOREX market

More information

The Foreign Exchange Market. Prof. Irina A. Telyukova UBC Economics 345 Fall 2008

The Foreign Exchange Market. Prof. Irina A. Telyukova UBC Economics 345 Fall 2008 The Foreign xchange Market Prof. Irina A. Telyukova UBC conomics 345 Fall 2008 Outline The foreign exchange market is the market where assets denominated in different currencies are traded against each

More information

The Foreign Exchange Market. Role of Foreign Exchange Markets

The Foreign Exchange Market. Role of Foreign Exchange Markets The Foreign Exchange Market Role of the foreign exchange markets Foreign exchange (FX) basics» Terminology» Types of contracts Organization and institutional features» Actors - brokers, dealers» Segments

More information

Chapter 5. The Foreign Exchange Market. Foreign Exchange Markets: Learning Objectives. Foreign Exchange Markets. Foreign Exchange Markets

Chapter 5. The Foreign Exchange Market. Foreign Exchange Markets: Learning Objectives. Foreign Exchange Markets. Foreign Exchange Markets Chapter 5 The Foreign Exchange Market Foreign Exchange Markets: Learning Objectives Examine the functions performed by the foreign exchange (FOREX) market, its participants, size, geographic and currency

More information

The foreign-exchange and derivatives markets in Hong Kong

The foreign-exchange and derivatives markets in Hong Kong The foreign-exchange and derivatives markets in Hong Kong by the Banking Policy Department The results of the latest triennial global survey of turnover in the markets for foreign-exchange (FX) and over-the-counter

More information

Special Drawing Rights A Way out of Global Imbalances?

Special Drawing Rights A Way out of Global Imbalances? Special Drawing Rights A Way out of Global Imbalances? Stefan Bender Special Drawing Rights Definition Special Drawing Rights (SDR) are the monetary unit of the reserve assets of the International Monetary

More information

Trading forex is buying one currency while at the same time selling a different currency.

Trading forex is buying one currency while at the same time selling a different currency. F O R E I G N E X C H A N G E B A S I C S T E R M S U S E D I N F O R E X T R A D I N G The foreign exchange market is global, and it is conducted over-the-counter (OTC) through the use of electronic trading

More information

FxPro Education. Introduction to FX markets

FxPro Education. Introduction to FX markets FxPro Education Within any economy, consumers and businesses use currency as a medium of exchange. In the UK, pound sterling is the national currency, while in the United States it is the US dollar. Modern

More information

PROFITEERING IN THE GLOBAL FOREX MARKET. -Presentation by R.K.Gurumurthy -Treasurer, Bank One Ltd

PROFITEERING IN THE GLOBAL FOREX MARKET. -Presentation by R.K.Gurumurthy -Treasurer, Bank One Ltd PROFITEERING IN THE GLOBAL FOREX MARKET -Presentation by R.K.Gurumurthy -Treasurer, Bank One Ltd The story of a successful trader 2 The story of a successful trader trader 3 The story of a successful trader

More information

CHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE

CHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE CHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE CHAPTER OVERVIEW This chapter discusses the nature and operation of the foreign exchange market. The chapter begins by describing the foreign exchange market and

More information

1. HOW DOES FOREIGN EXCHANGE TRADING WORK?

1. HOW DOES FOREIGN EXCHANGE TRADING WORK? XV. Important additional information on forex transactions / risks associated with foreign exchange transactions (also in the context of forward exchange transactions) The following information is given

More information

Thank You for Attention

Thank You for Attention Thank You for Attention Explain how the foreign exchange market works. Examine the forces that determine exchange rates. Consider whether it is possible to predict future rates movements. Map the business

More information

Foreign Exchange Risk Management

Foreign Exchange Risk Management Foreign Exchange Risk Management Perry D. Mehta Federal Reserve Bank of Richmond, Charlotte Office perry.mehta@rich.frb.org Seminar for Senior Bank Supervisors from Emerging Economies Washington, DC October,

More information

J. Gaspar: Adapted from Jeff Madura International Financial Management

J. Gaspar: Adapted from Jeff Madura International Financial Management Chapter3 International Financial Markets J. Gaspar: Adapted from Jeff Madura International Financial Management 3-1 International Financial Markets Can be segmented as follows: 1.The Foreign Exchange Market

More information

Information Release 1 September 2010. Central Bank Survey of Foreign-Exchange and Derivative Market Activity

Information Release 1 September 2010. Central Bank Survey of Foreign-Exchange and Derivative Market Activity Information Release 1 September 2010 Central Bank Survey of Foreign-Exchange and Derivative Market Activity The Central Bank today (Wednesday 1 September) publishes the results of a survey of foreign-exchange

More information

CHAPTER 7 SUGGESTED ANSWERS TO CHAPTER 7 QUESTIONS

CHAPTER 7 SUGGESTED ANSWERS TO CHAPTER 7 QUESTIONS INSTRUCTOR S MANUAL: MULTINATIONAL FINANCIAL MANAGEMENT, 9 TH ED. CHAPTER 7 SUGGESTED ANSWERS TO CHAPTER 7 QUESTIONS 1. Answer the following questions based on data in Exhibit 7.5. a. How many Swiss francs

More information

Glossary of Forex (Foreign Exchange) Terminology

Glossary of Forex (Foreign Exchange) Terminology Glossary of Forex (Foreign Exchange) Terminology A Aggregate Demand - The sum of government spending, personal consumption expenditures, and business expenditures. Appreciation - A currency is said to

More information

Use of currencies In international trade by Marc Auboin, Counsellor

Use of currencies In international trade by Marc Auboin, Counsellor Use of currencies In international trade by Marc Auboin, Counsellor 3 basic realities and 2 questions Trade finance: systemic to trade. Little trade paid cash - 70-80% of world trade relies on trade credit/guarantees.

More information

CHAPTER 19 CURRENCIES AND FOREIGN EXCHANGE

CHAPTER 19 CURRENCIES AND FOREIGN EXCHANGE CHAPTER 19 CURRENCIES AND FOREIGN EXCHANGE MULTIPLE CHOICE 1. A currency becomes hard when a) it is backed by gold b) a government declares that it is an international currency c) it has been around for

More information

Assignment 10 (Chapter 11)

Assignment 10 (Chapter 11) Assignment 10 (Chapter 11) 1. Which of the following tends to cause the U.S. dollar to appreciate in value? a) An increase in U.S. prices above foreign prices b) Rapid economic growth in foreign countries

More information

THE US DOLLAR, THE EURO, THE JAPANESE YEN AND THE CHINESE YUAN IN THE FOREIGN EXCHANGE MARKET A COMPARATIVE ANALYSIS

THE US DOLLAR, THE EURO, THE JAPANESE YEN AND THE CHINESE YUAN IN THE FOREIGN EXCHANGE MARKET A COMPARATIVE ANALYSIS THE US DOLLAR, THE EURO, THE JAPANESE YEN AND THE CHINESE YUAN IN THE FOREIGN EXCHANGE MARKET A COMPARATIVE ANALYSIS ORASTEAN Ramona Lucian Blaga University of Sibiu, Romania Abstract: This paper exposes

More information

INTERNATIONAL MONEY AND FINANCE

INTERNATIONAL MONEY AND FINANCE INTERNATIONAL MONEY AND FINANCE EIGHTH EDITION MICHAEL MELVIN AND STEFAN C. NORRBIN ELSEVIER Amsterdam Boston Heidelberg London New york Oxford Paris San Diego San Francisco Singapore Sydney Tokyo Academic

More information

Chapter 16: Financial Risk Management

Chapter 16: Financial Risk Management Chapter 16: Financial Risk Management Introduction Overview of Financial Risk Management in Treasury Interest Rate Risk Foreign Exchange (FX) Risk Commodity Price Risk Managing Financial Risk The Benefits

More information

Getting Started With Forex Trading: A Forex Primer. Member NASD, NYSE, SIPC, and NFA

Getting Started With Forex Trading: A Forex Primer. Member NASD, NYSE, SIPC, and NFA Getting Started With Forex Trading: A Forex Primer Member NASD, NYSE, SIPC, and NFA 1 Important Information and Disclaimer: TradeStation Securities, Inc. seeks to serve institutional and active traders.

More information

The Modern Foreign Exchange Market

The Modern Foreign Exchange Market fxpa www.fxpa.org Foreign Exchange Professionals Association The Modern Foreign Exchange Market Key Concepts Foreign exchange (FX) is a global market in which any two currencies can be traded against each

More information

Assignment 3 Answer Key (Maximum Points: 100) Multiple-Choice Questions Each question is worth 3 points. Explanation is not required.

Assignment 3 Answer Key (Maximum Points: 100) Multiple-Choice Questions Each question is worth 3 points. Explanation is not required. Econ 4401 International Economics University of Minnesota Deniz Cicek Fall 2009 Assignment 3 Answer Key (Maximum Points: 100) Multiple-Choice Questions Each question is worth 3 points. Explanation is not

More information

International Finance A note on the foreign exchange market and its instruments

International Finance A note on the foreign exchange market and its instruments International Finance Professor Michel A. Robe International Finance A note on the foreign exchange market and its instruments i. FOREX MARKET The foreign exchange (forex or FX) market is an over-the-counter

More information

3. The Foreign Exchange Market

3. The Foreign Exchange Market 3. The Foreign Exchange Market The foreign exchange market provides the physical and institutional structure through which the money of one country is exchanged for that of another country, the rate of

More information

CHAPTER 16 EXCHANGE-RATE SYSTEMS

CHAPTER 16 EXCHANGE-RATE SYSTEMS CHAPTER 16 EXCHANGE-RATE SYSTEMS MULTIPLE-CHOICE QUESTIONS 1. The exchange-rate system that best characterizes the present international monetary arrangement used by industrialized countries is: a. Freely

More information

The Need for Futures Markets in Currencies Milton Friedman

The Need for Futures Markets in Currencies Milton Friedman The Need for Futures Markets in Currencies Milton Friedman Under the Bretton Woods system, the central banks of the world undertook to keep the exchange rates of their currencies in terms of the dollar

More information

TRADING STRATEGIES FOR DERIVATIVES MARKET

TRADING STRATEGIES FOR DERIVATIVES MARKET TRADING STRATEGIES FOR DERIVATIVES MARKET 1 AGENDA Definition of Derivatives Origin of Derivatives Basic types of Derivatives Benefits of Trading Derivatives Trading Strategies 2 Definition of Derivatives

More information

BANK FOR INTERNATIONAL SETTLEMENTS P.O. BOX, 4002 BASLE, SWITZERLAND

BANK FOR INTERNATIONAL SETTLEMENTS P.O. BOX, 4002 BASLE, SWITZERLAND BANK FOR INTERNATIONAL SETTLEMENTS P.O. BOX, 4002 BASLE, SWITZERLAND PRESS RELEASE CENTRAL BANK SURVEY OF FOREIGN EXCHANGE AND DERIVATIVES MARKET ACTIVITY IN APRIL 1998: PRELIMINARY GLOBAL DATA The BIS

More information

Recent Trends in Japanese Foreign-Exchange Margin Trading

Recent Trends in Japanese Foreign-Exchange Margin Trading 28-E-3 Recent Trends in Japanese Foreign-Exchange Tai Terada, Naoto Higashio, Jun Iwasaki Foreign Exchange Operations Financial Markets Department September 28 Foreign-exchange margin trading 1 by individual

More information

To appear as an entry in the Concise Encyclopedia of Economics, Liberty Fund, Inc., edited by David Henderson.

To appear as an entry in the Concise Encyclopedia of Economics, Liberty Fund, Inc., edited by David Henderson. Foreign exchange Jeffrey A. Frankel September 2005 To appear as an entry in the Concise Encyclopedia of Economics, Liberty Fund, Inc., edited by David Henderson. The foreign exchange market is the market

More information

Forex Basics brought to you by MatrasPlatform.com

Forex Basics brought to you by MatrasPlatform.com Forex Basics brought to you by MatrasPlatform.com Table of Content What is FOREX... 3 FOREX Basics... 4 Trading Hours... 4 What Is Traded on FOREX?... 4 The Six Majors... 4 Currency Pair Distribution...

More information

The purpose of this ebook is to introduce newcomers to the forex marketplace and CMTRADING. Remember that trading in forex is inherently risky, and

The purpose of this ebook is to introduce newcomers to the forex marketplace and CMTRADING. Remember that trading in forex is inherently risky, and The purpose of this ebook is to introduce newcomers to the forex marketplace and CMTRADING. Remember that trading in forex is inherently risky, and you can lose money as well as make money. Manage your

More information

QUESTIONS. 1. Explain how inflation and nationalism make it impossible for a single global currency to exist.

QUESTIONS. 1. Explain how inflation and nationalism make it impossible for a single global currency to exist. QUESTIONS 1. Explain how inflation and nationalism make it impossible for a single global currency to exist. A global currency is practically impossible because of national sovereignty and inflation. Because

More information

INDUSTRIAL AND COMMERCIAL BANK OF CHINA ICBC: Your Global Portal to RMB Market. July 2012

INDUSTRIAL AND COMMERCIAL BANK OF CHINA ICBC: Your Global Portal to RMB Market. July 2012 ICBC: Your Global Portal to RMB Market July 2012 Content General Introduction Investment in RMB Services Solution 1 General Introduction to Renminbi (RMB) RMB Renminbi (commonly abbreviated as RMB) is

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. ECON 4110: Sample Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Economists define risk as A) the difference between the return on common

More information

1. WHY WE NEED FOREIGN EXCHANGE 2. WHAT FOREIGN EXCHANGE MEANS 3. ROLE OF THE EXCHANGE RATE. 9 The Foreign Exchange Market in the United States

1. WHY WE NEED FOREIGN EXCHANGE 2. WHAT FOREIGN EXCHANGE MEANS 3. ROLE OF THE EXCHANGE RATE. 9 The Foreign Exchange Market in the United States CHAPTER 2 1. WHY WE NEED FOREIGN EXCHANGE Almost every nation has its own national currency or monetary unit its dollar, its peso, its rupee used for making and receiving payments within its own borders.

More information

CommSeC CFDS: IntroDuCtIon to FX

CommSeC CFDS: IntroDuCtIon to FX CommSec CFDs: Introduction to FX Important Information This brochure has been prepared without taking account of the objectives, financial and taxation situation or needs of any particular individual.

More information

Arbitrage. In London: USD/GBP 0.645 In New York: USD/GBP 0.625.

Arbitrage. In London: USD/GBP 0.645 In New York: USD/GBP 0.625. Arbitrage 1. Exchange rate arbitrage Exchange rate arbitrage is the practice of taking advantage of inconsistent exchange rates in different markets by selling in one market and simultaneously buying in

More information

INTRODUCTION TO FOREIGN EXCHANGE

INTRODUCTION TO FOREIGN EXCHANGE INTRODUCTION TO FOREIGN EXCHANGE Capademy Tutorial Series Option Banque Training Series Vol. 1 The foreign exchange market known as forex for short is the market in which currencies or sovereign money

More information

Introduction to Exchange Rates and the Foreign Exchange Market

Introduction to Exchange Rates and the Foreign Exchange Market Introduction to Exchange Rates and the Foreign Exchange Market 2 1. Refer to the exchange rates given in the following table. Today One Year Ago June 25, 2010 June 25, 2009 Country Per $ Per Per Per $

More information

General Risk Disclosure

General Risk Disclosure General Risk Disclosure Colmex Pro Ltd (hereinafter called the Company ) is an Investment Firm regulated by the Cyprus Securities and Exchange Commission (license number 123/10). This notice is provided

More information

The U.S. Dollar Rally: Understanding its impact on your business

The U.S. Dollar Rally: Understanding its impact on your business David Coomer, CPA dcoomer@cshco.com 937.226.0070 Rick Jones rick.jones@bbgfx.com 513.386.7447 The U.S. Dollar Rally: Understanding its impact on your business Agenda Introduction and Overview The Foreign

More information

Chapter 4 - The Foreign Exchange Market. Functions of the FX Market

Chapter 4 - The Foreign Exchange Market. Functions of the FX Market Chapter 4 - The Foreign Exchange Market Market Structure and Roles Volume and distribution by Country, Currencies Who trades with Whom Introduction to different kinds of Foreign Exchange contracts Spot,

More information

Understanding World Currencies and Exchange Rates

Understanding World Currencies and Exchange Rates Understanding World Currencies and Exchange Rates Contents Currencies Exchange Rates Exchange Rate Movements Interpreting Numerical Exchange Rate Movements How Foreign Exchange Markets Work Why Exchange

More information

The foreign exchange market operates 24 hours a day and as a result it

The foreign exchange market operates 24 hours a day and as a result it CHAPTER 5 What Are the Best Times to Trade for Individual Currency Pairs? The foreign exchange market operates 24 hours a day and as a result it is impossible for a trader to track every single market

More information

Turnover of the foreign exchange and derivatives market in Hong Kong

Turnover of the foreign exchange and derivatives market in Hong Kong Turnover of the foreign exchange and derivatives market in Hong Kong by the Banking Policy Department Hong Kong advanced one place to rank sixth in the global foreign exchange market and seventh when taking

More information

Electronic Trading and the Australian Foreign Exchange Market

Electronic Trading and the Australian Foreign Exchange Market Electronic Trading and the Australian Foreign Exchange Market Alexandra Heath and James Whitelaw* The introduction of electronic broking to the foreign exchange market in the early 199s signalled the start

More information

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 25 Exch Rate & BofP 1) Foreign currency is A) the market for foreign exchange.

More information

Ch. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A.

Ch. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A. Ch. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A. Currency and real assets. B. Services and manufactured goods. C.

More information

Universidad del CEMA. Master in Finance. Research Work

Universidad del CEMA. Master in Finance. Research Work Universidad del CEMA Master in Finance Research Work Advantages and Disadvantages of a Hedge for the Exchange-Rate Risk in the Spot FX Market and Futures Market AUTHOR: Martín Larrañaga Buenos Aires, February

More information

Covering Currency Markets. by Atiya Hussain

Covering Currency Markets. by Atiya Hussain 1 of 9 6/21/2010 5:00 PM Covering Currency Markets by Atiya Hussain Foreign exchange, the business of trading the world s currencies, comprises a huge, busy market that is never officially closed, not

More information

General Forex Glossary

General Forex Glossary General Forex Glossary A ADR American Depository Receipt Arbitrage The simultaneous buying and selling of a security at two different prices in two different markets, with the aim of creating profits without

More information

An Introduction to. CME Foreign Exchange Products

An Introduction to. CME Foreign Exchange Products An Introduction to CME Foreign Exchange Products What Are Futures and Options? Futures contracts are standardized, legally binding agreements to buy or sell a specific product or financial instrument in

More information

FOREX. made easy. UNDERSTANDING THE BASICS. An educational tool by Blackwell Global.

FOREX. made easy. UNDERSTANDING THE BASICS. An educational tool by Blackwell Global. FOREX made easy UNDERSTANDING THE BASICS. An educational tool by Blackwell Global. Risk Warning: Forex and CFDs are leveraged products and you may lose your initial deposit as well as substantial amounts

More information

CONSULTATION DOCUMENT

CONSULTATION DOCUMENT EUROPEAN COMMISSION Directorate General Internal Market and Services FINANCIAL MARKETS Securities Markets Brussels, 10 April 2014 Disclaimer CONSULTATION DOCUMENT FX FINANCIAL INSTRUMENTS This document

More information

Fifth Edition. Steven Husted University of Pittsburgh. Michael Melvin Arizona State University

Fifth Edition. Steven Husted University of Pittsburgh. Michael Melvin Arizona State University Fifth Edition Steven Husted University of Pittsburgh Michael Melvin Arizona State University Boston San Francisco New York London Toronto Sydney Tokyo Singapore Madrid Mexico City Munich Paris Cape Town

More information

1. HOW THE GLOBAL ENVIRONMENT HAS CHANGED

1. HOW THE GLOBAL ENVIRONMENT HAS CHANGED CHAPTER 1 In a universe with a single currency, there would be no foreign exchange market, no foreign exchange rates, no foreign exchange. But in our world of mainly national currencies, the foreign exchange

More information

Fixed Exchange Rates and Exchange Market Intervention. Chapter 18

Fixed Exchange Rates and Exchange Market Intervention. Chapter 18 Fixed Exchange Rates and Exchange Market Intervention Chapter 18 1. Central bank intervention in the foreign exchange market 2. Stabilization under xed exchange rates 3. Exchange rate crises 4. Sterilized

More information

Study Questions (with Answers) Lecture 14 Pegging the Exchange Rate

Study Questions (with Answers) Lecture 14 Pegging the Exchange Rate Study Questions (with Answers) Page 1 of 7 Study Questions (with Answers) Lecture 14 the Exchange Rate Part 1: Multiple Choice Select the best answer of those given. 1. Suppose the central bank of Mexico

More information

What Are the Best Times to Trade for Individual Currency Pairs?

What Are the Best Times to Trade for Individual Currency Pairs? What Are the Best Times to Trade for Individual Currency Pairs? By: Kathy Lien The foreign exchange market operates 24 hours a day and as a result it is impossible for a trader to track every single market

More information

Capital Markers Section 1 Foreign Exchange Markets

Capital Markers Section 1 Foreign Exchange Markets Πανεπιστήμιο Πειραιώς, Τμήμα Τραπεζικής και Χρηματοοικονομικής Διοικητικής Μεταπτυχιακό Πρόγραμμα «Χρηματοοικονομική Ανάλυση για Στελέχη» Capital Markers Section 1 Foreign Exchange Markets Michail Anthropelos,

More information

What is Forex Trading?

What is Forex Trading? What is Forex Trading? Foreign exchange, commonly known as Forex or FX, is the exchange of one currency for another at an agreed exchange price on the over-the-counter (OTC) market. Forex is the world

More information

An Introduction to Online Trading. National University of Singapore 22 March 2007 Klaus Buhl

An Introduction to Online Trading. National University of Singapore 22 March 2007 Klaus Buhl An Introduction to Online Trading National University of Singapore 22 March 2007 Klaus Buhl Introduction Saxo Capital Markets Pte. Ltd. Financial Markets: - Yesterday -Today -Tomorrow Saxo Trader Multiple

More information

CURRENCY FUTURES IN INDIA WITH SPECIAL REFERENCE TO CURRENCY FUTURES TRADED AT NSE

CURRENCY FUTURES IN INDIA WITH SPECIAL REFERENCE TO CURRENCY FUTURES TRADED AT NSE CURRENCY FUTURES IN INDIA WITH SPECIAL REFERENCE TO CURRENCY FUTURES TRADED AT NSE Vinayak R. Gramopadhye Assistant professor, ASM s Institute of International Business and Research, Pimpri, Pune-18 Abstract

More information

Learn to Trade FOREX II

Learn to Trade FOREX II Lesson 1 The Forex Market The Foreign Exchange market, also referred to as the "FX market" or "Spot FX", is the largest financial market in the world with daily average turnover of US$1.9 trillion. Unlike

More information

Best Execution Policy

Best Execution Policy Black Pearl Securities Limited "the Firm" Best Execution Policy This Best Execution Policy is applicable to Matched Principle Broker (MPB) services provided to you by the Firm and it should be read in

More information

Currency Derivatives Guide

Currency Derivatives Guide Currency Derivatives Guide What are Futures? In finance, a futures contract (futures) is a standardised contract between two parties to buy or sell a specified asset of standardised quantity and quality

More information

What Determines Exchange Rates? In the Short Run In the Long Run

What Determines Exchange Rates? In the Short Run In the Long Run What Determines Exchange Rates? In the Short Run In the Long Run Selected Exchange Rates Selected Exchange Rates Determinants of the Exchange Rate in the Short Run In the short run, movements of currency

More information

The Market for Foreign Exchange

The Market for Foreign Exchange The Market for Foreign Exchange Chapter Objective: 5 Chapter Five This chapter introduces the institutional framework within which exchange rates are determined. It lays the foundation for much of the

More information

8 Day Intensive Course Lesson 6 Fundamental Analysis -- Who and What Moves the Market

8 Day Intensive Course Lesson 6 Fundamental Analysis -- Who and What Moves the Market 8 Day Intensive Course Lesson 6 Fundamental Analysis -- Who and What Moves the Market A) FX Market Structure FX Market Structure The FX market is an over-the-counter market with no centralized exchange.

More information

Introduction to Foreign Exchange. Andrew Wilkinson

Introduction to Foreign Exchange. Andrew Wilkinson Introduction to Foreign Exchange Andrew Wilkinson Risk Disclosure Options and Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading

More information

The distribution of premiums and discounts on forward exchange transactions that relate to deposit swap deals, over the period of each deal.

The distribution of premiums and discounts on forward exchange transactions that relate to deposit swap deals, over the period of each deal. A Accrual The distribution of premiums and discounts on forward exchange transactions that relate to deposit swap deals, over the period of each deal. Adjustment Is normally an official action to either

More information

Chapter 1.1. The Forex Market

Chapter 1.1. The Forex Market Chapter 1.1 The Forex Market 0 THE FOREX MARKET The Forex market is the largest financial market in the world. Nearly $3.2 trillion worth of foreign currencies trade back and forth across the Forex market

More information

The World s Elite Trading School. The Trusted Source for Online Investing and Day Trading Education Since 1994. What is a Forex?

The World s Elite Trading School. The Trusted Source for Online Investing and Day Trading Education Since 1994. What is a Forex? What is a Forex? Forex is the market where one currency is traded for another Unlike stocks and futures exchange, foreign exchange is indeed an interbank, over-the-counter (OTC) market which means there

More information

RMB Internationalization and RMB Offshore Markets Development

RMB Internationalization and RMB Offshore Markets Development RMB Internationalization and RMB Offshore Markets Development Dr. Qin Xiao Former Chairman, China Merchants Group and China Merchants Bank Council Member, Hong Kong Financial Services Development Council

More information

Evolution of Forex the Active Trader s Market

Evolution of Forex the Active Trader s Market Evolution of Forex the Active Trader s Market The practice of trading currencies online has increased threefold from 2002 to 2005, and the growth curve is expected to continue. Forex, an abbreviation for

More information

Forwards and Futures

Forwards and Futures Prof. Alex Shapiro Lecture Notes 16 Forwards and Futures I. Readings and Suggested Practice Problems II. Forward Contracts III. Futures Contracts IV. Forward-Spot Parity V. Stock Index Forward-Spot Parity

More information

What you will learn: UNIT 3. Traditional Flow Model. Determinants of the Exchange Rate

What you will learn: UNIT 3. Traditional Flow Model. Determinants of the Exchange Rate What you will learn: UNIT 3 Determinants of the Exchange Rate (1) Theories of how inflation, economic growth and interest rates affect the exchange rate (2) How trade patterns affect the exchange rate

More information

FLEXIBLE EXCHANGE RATES

FLEXIBLE EXCHANGE RATES FLEXIBLE EXCHANGE RATES Along with globalization has come a high degree of interdependence. Central to this is a flexible exchange rate system, where exchange rates are determined each business day by

More information

A New Episode in the Stock Exchange Mergers Saga: Intercontinental Exchange (ICE)/New York Stock Exchange (NYSE)

A New Episode in the Stock Exchange Mergers Saga: Intercontinental Exchange (ICE)/New York Stock Exchange (NYSE) Competition Policy International A New Episode in the Stock Exchange Mergers Saga: Intercontinental Exchange (ICE)/New York Stock Exchange (NYSE) Professor Ioannis Kokkoris (Center for Commercial Law and

More information

WHAT S NEW IN THOMSON REUTERS EIKON FOR FEBRUARY 2011 FX & MONEY MARKETS

WHAT S NEW IN THOMSON REUTERS EIKON FOR FEBRUARY 2011 FX & MONEY MARKETS THOMSON REUTERS EIKON WHAT S NEW IN THOMSON REUTERS EIKON FOR FEBRUARY 2011 FX & MONEY MARKETS Thomson Reuters Training It is essential to keep up to date with new functionality and features for Thomson

More information

Oxford University Business Economics Programme

Oxford University Business Economics Programme The Open Economy Gavin Cameron Tuesday 10 July 2001 Oxford University Business Economics Programme the exchange rate The nominal exchange rate is simply the price of one currency in terms of another pounds

More information

Renminbi (RMB) corporate and treasury services in London

Renminbi (RMB) corporate and treasury services in London Renminbi (RMB) corporate and treasury services in London City of London RENMINBI SERIES London offers an extensive range of RMB corporate banking services including: o Corporate accounts; o Term deposits;

More information

BEST TIMES TO TRADE THE FOREX MARKET

BEST TIMES TO TRADE THE FOREX MARKET BEST TIMES TO TRADE THE FOREX MARKET The forex market is the largest financial market in the world, trading around $3.1 trillion each day. (Every three years, the Bank of International Settlements (BIS)

More information