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THE FOREIGN EXCHANGE MARKETS - Coggle Diagram
THE FOREIGN EXCHANGE MARKETS
The exchange rate
Dealers and brokers usually quote not one, but two exchange rates for each pair of currencies: a buy price and an ask self price
Professional trades may take advantage of the arbitrage opprtunity
Kinds of exchange rate transactions
SPOT
Settlement is ussuale within one or two business days
Forward
It is an agreement to deliver a specified amount at a set price specified amount at a set price on some future date (known as the value date) within 1,2,3,6 or 12 months.
Deal with currensy risk
Swaps
Options
Future contracts
Participants in the Forex
Arbitragers
Make profit from exchange rate differences in different markets
Speculators
Make profit from exchange rate changes
Central banks and treasuries
Dealers
This is banks and a few nonbank foreign echange dealers
Operate in both the interbank and client markets
Brokers
Agents who facilitate agents who facilitate trading between dealers
The largest money center banks
Headquartered in New York, London, Tokyo, and other financial capitals of the world
Maintain large inventories of key foreign currencies
Trade currencies with each other through an exchange of deposits
The trading between national currencies is important in the overall value of a single country’s currency.
When the currency markets open in Europe, its counterpart in Asia will be winding down to a close.
As the European market closes, the American market opens and so on and so forth.