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FOREX (Factors Affecting
FOREX in LR (Relative Price Level
LR, rise in…
FOREX
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Ways of
Trading
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Dealer constantly on phone and computer; market very competitive; no different with centralized market
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Participants
Speculators
- open position to profit from expected future movement
- risky - involves spot buying on currency that is expected to appr & sell to realize profit if predict correct
Hedgers
- Protect from future foreign exchange exposure
Arbitrageurs
- make riskless profit by comparing forward premium/discount against interest differentials of 2 countries
Types
Forward transactions
exchange of bank deposits at some specified future date using forward exchange rate
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Definition
Trade between countries or bank deposit denominated in different countries take place in different FOREX market
Transactions
determines
- rates at which currency is exchanged,
- cost of purchasing foreign goods and financial assets
Importance
- affect relative price of domestic goods and foreign goods
- currency of Msia appr, Msia goods in foreign appr, foreign goods in Msia depr
- domestic biz less competitive
- benefits domestic consumers
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