Foreign Exchange What is the foreign exchange rate

  • Slides: 6
Download presentation
Foreign Exchange • • What is the foreign exchange rate? What is the foreign

Foreign Exchange • • What is the foreign exchange rate? What is the foreign exchange market? What is the foreign exchange organization? Who are the participants? - importers/exporters, investors, tourists, banks, dealers, brokers, speculators • Why use the foreign exchange markets? - to hedge currency risk, to diversify portfolios, to make money

Demand for the Dollar ($) • • • Investment Currency Reserve Currency Transaction Currency

Demand for the Dollar ($) • • • Investment Currency Reserve Currency Transaction Currency Invoice Currency Intervention Currency

Foreign Exchange Definitions • Convertibility – the degree that one currency can be exchanged

Foreign Exchange Definitions • Convertibility – the degree that one currency can be exchanged for another one without difficulty • Hard Currency – is a currency that is convertible and is supported by a strong economy • Spot Rate – an exchange rate quoted for immediate delivery or within 2 business days • Forward Rate – an exchange rate quoted for today that is intended for use in the future. It is a verbal agreement or a binding contract

Foreign Exchange Definitions Continued • Value Rate – is the date of settlement for

Foreign Exchange Definitions Continued • Value Rate – is the date of settlement for the foreign exchange transactions • Bid price – the price the dealer is willing to buy a currency at • Offer price/ ask price – is the price the dealer sells currency for • Spread – is the difference between the buy and sell price from the dealer’s point of view.

Foreign Exchange Definitions Continued • Direct Quote – the number of units of a

Foreign Exchange Definitions Continued • Direct Quote – the number of units of a domestic currency for one unit of foreign currency • Indirect Quote – the number of units of a foreign currency for one unit of a domestic currency • Spread (forward) – is either a discount or a premium - when the forward rate is higher than the spot rate selling at a premium - when the forward rate is lower than the spot rate selling at a discount

Balance of Payments • B of P – is a record of the value

Balance of Payments • B of P – is a record of the value of all economic transactions between residents of a country Consists of the following accounts: Merchandise Trade Bal. Services Unilateral Transfers Current Accounts +

Foreign Exchange Risk Foreign Exchange Risk Foreign exchangeForeign Exchange Risk Foreign Exchange Risk Foreign exchange
FOREIGN EXCHANGE RATE 1 INTRODUCTION The exchange rateFOREIGN EXCHANGE RATE 1 INTRODUCTION The exchange rate
INTERNATIONAL EXCHANGE Foreign Exchange Foreign exchange is theINTERNATIONAL EXCHANGE Foreign Exchange Foreign exchange is the
Foreign Exchange Rates Exchange Controls Devaluation Foreign ExchangeForeign Exchange Rates Exchange Controls Devaluation Foreign Exchange
Foreign Exchange Markets Exchange Rates Foreign exchange marketForeign Exchange Markets Exchange Rates Foreign exchange market