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The market for foreign exchange, Exchange Traded currency Funds - Coggle…
The market for foreign exchange
The forward Market
Contracting today for the future purchase or sale of foreign exchange text
Forward rate quotations
Appear directly under the spot rate quotations for five major currencies
Long and short foward positions
Buy : take a long position
Sell: take a short position
Forward Premium
The forward premium (or discount) is useful for comparing against the interest rate differential between two countries.
The forward exchange rate is less than the spot rate
Forward Cross-Exchange Rate
Swap Transactions
the simultaneous sale (or purchase) of spot foreign exchange against a forward purchase (or sale) of approximately an equal amount of the foreign currency.
provide a means for the bank to mitigate the currency exposure in a forward trade.
Forward cross-exchange rate quotations are calculated in an analogous manner to spot cross-rates, so it is not necessary to provide detailed examples.
Outright forward transaction
an uncovered speculative position in a currency
The spot market
Cross exchange rate quotation
An exchange rate between a currency pair where neither currency is the US dollar
The Bid - Ask Spread
Bid price
buy currency for inventory
ask price
sell from inventory
Spot rate quotation
Indirect quotation
the price of one domestic currency in term of the of a foreign currency
European term
the US dollar is price in terms of the foreign currency
Direct quotation
the price of one unit of foreign currency in term of the domestic currency
American term
Price certain currencies in term of the US dollar
Spot FX Trading
Involves almost immediate purchase or sale of foreign exchange
Triangular Arbitrage
Trading among three currencies when the direct cross-exchange rate is not in alignment with the implied cross-exchange rate
Funtion and structure of the FX Market
FX Market participants
Bank customers
Nonbank dealers
FX brokers
Central banks
International banks
Correspondent Banking Relationships
Exchange Traded currency Funds