Foreign Exchange - The foreign exchange market
- A currency exchange rate
- Is simply the ratio of a unit of currency of country A to a unit of the currency of country B at the time of the buy or sell transaction
- An exchange rate is the rate at which one currency can be exchanged for another.
- In other words, it is the value of another country's currency compared to that of your own.
- If you are traveling to another country, you need to "buy" the local currency. Just like the price of any asset, the exchange rate is the price at which you can buy that currency. If you are traveling to Egypt, for example, and the exchange rate for U.S. dollars is 1:5.5 Egyptian pounds, this means that for every U.S. dollar, you can buy five and a half Egyptian pounds.
- Theoretically, identical assets should sell at the same price in different countries, because the exchange rate must maintain the inherent value of one currency against the other.
The Foreign Exchange Market - Currency conversion in the foreign exchange market
- Is necessary to complete private and commercial transactions across borders
- A tourist needs to pay expenses on the road in local currency
- A firm
- Is used to speculate on currency movements
The Foreign Exchange Market - Minimizes foreign exchange risk (unpredictable rate swings)
- To do so there are different ways to trade currencies
- Spot exchange rates: the day’s rate offered by a dealer/bank
- Forward exchange rates:
- Agreed in advance rates to buy/sell a currency on a future date
- Usually quoted 30, 90, 120 days in advance
- The market is “open” 24 hours…
- Arbitrage is the process of buying low and selling high … given slightly different exchange rate quotes in one location vs another (e.g., London vs Tokyo)
Do'stlaringiz bilan baham: |
