Chapter 15 - McGraw Hill Higher Education

advertisement
Chapter 15
Foreign Exchange
Market: Participants
and Mechanics
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
1
Learning Objectives
• Identify participants in foreign exchange
(FX) markets
• Describe functions and operations of FX
markets
• Outline instruments traded in FX markets
• Explain conventions for quotation and
calculation of exchange rates and forward
exchange rates Identify participants in
foreign exchange (FX) markets
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
2
Chapter Organisation
15.1
15.2
15.3
15.4
15.5
15.6
15.7
15.8
Introduction
FX Market Participants
Operation of the FX Market
Spot and Forward Transactions
Spot Market Quotations
Forward Market Quotations
European Monetary Union
Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
3
15.1 Introduction
• FX markets comprise all financial
transactions denominated in foreign
currency, currently estimated to be USD1.5
trillion per day
• Facilitate exchange of value from one
currency to another
• Internationally adopted FX market
conventions to improve market functionality
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
4
Chapter Organisation
15.1
15.2
15.3
15.4
15.5
15.6
15.7
15.8
Introduction
FX Market Participants
Operation of the FX Market
Spot and Forward Transactions
Spot Market Quotations
Forward Market Quotations
European Monetary Union
Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
5
15.2 FX Market Participants
• FX market participants can be classified as
– Firms conducting international trade
transactions
– FX dealers
– Central banks
– Investors and borrowers
– Speculative transactions
– Arbitrage transactions
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
6
Firms conducting international
trade transactions
• Exporters receive foreign currency for the
sale of their goods and services
• Exporters use the FX market to sell foreign
currency and buy AUD
• Importers use the FX market to buy foreign
currency (sell AUD) to be used for
purchasing imports
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
7
FX dealers
• Are financial institutions that are licensed or
authorised by the central banks of the
countries in which they operate
• Quote two-way (i.e. buy and sell) prices
• There are also FX brokers who transact
almost exclusively with FX dealers
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
8
Central banks
• Enter FX market to
– Purchase foreign currency to pay for imports or
interest on foreign debt
– Change the composition of holdings of foreign
currencies
– Influence the exchange rate
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
9
Investors and borrowers
• Commercial bank foreign borrowings are
usually converted into the home currency
• Corporations and financial institutions
investing overseas
–
–
Need to purchase FX in order to make the
investments
Dividends or interest payments received from
overseas investments will be denominated in a
foreign currency
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
10
Speculative transactions
• Businesses and financial institutions may
attempt to anticipate future exchange rate
movements to make a profit
• There is a risk involved that the exchange
rate will either move
–
–
In the opposite direction to that anticipated
In the anticipated direction but by less than
expected
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
11
Speculative transactions (cont.)
–
Example
If, today:
Spot rate: USD1= AUD1.65
Exchange rate expected today + n days: USD1= AUD1.70
Then, today:
Buy USD1 at a cost of AUD1.65
Then, at today + n days:
Sell USD1 and obtain AUD1.70
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
12
Arbitrage transactions
• Profit is made through FX transactions that
involve no FX risk exposure
• Types of arbitrage
–
–
Locational—where two dealers quote different
rates on the same currency
Triangular—occurs when exchange rates
between three or more currencies are out of
perfect alignment
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
13
Arbitrage transactions (cont.)
Example: Triangular arbitrage
USD1 = AUD1.65
USD1 = SGD1.65
AUD1 = SGD 0.97
Arbitrage strategy
Sell AUD1.65 and receive USD1
Sell USD1 to receive SGD1.65
Sell SGD1.65 to receive AUD1.70
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
14
Chapter Organisation
15.1
15.2
15.3
15.4
15.5
15.6
15.7
15.8
Introduction
FX Market Participants
Operation of the FX Market
Spot and Forward Transactions
Spot Market Quotations
Forward Market Quotations
European Monetary Union
Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
15
15.3 Operation of the FX
Market
• The FX market
– Is a global market, operating 24 hours a day
according to business hours across the time
zones
– Consists of a vast and highly sophisticated
global network of telecommunications systems
that provide the current buy and sell rates for
various currencies in dealing rooms located
around the globe
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
16
Chapter Organisation
15.1
15.2
15.3
15.4
15.5
15.6
15.7
15.8
Introduction
FX Market Participants
Operation of the FX Market
Spot and Forward Transactions
Spot Market Quotations
Forward Market Quotations
European Monetary Union
Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
17
15.4 Spot and Forward
Transactions
• FX market instruments are typically
– Spot transactions

Have maturity date two business days after the FX
contract is entered into
•
–
e.g. used if an Australian importer has an account in
USD to pay within the next few days
Forward transactions

Have maturity date more than two days after FX
contract is entered into
•
e.g. used if Australian importer has to pay a USD
liability in 2 months
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
18
15.4 Spot and Forward
Transactions (cont.)
• Dealers may also provide short-dated
transactions if necessary
‘Tod’ value transactions: same-day settlement
– ‘Tom’ value transactions: settlement tomorrow
–
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
19
Chapter Organisation
15.1
15.2
15.3
15.4
15.5
15.6
15.7
15.8
Introduction
FX Market Participants
Operation of the FX Market
Spot and Forward Transactions
Spot Market Quotations
Forward Market Quotations
European Monetary Union
Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
20
15.5 Spot Market Quotations
• Asking for a quotation
– The price of currency is expressed in terms of
another currency
– The first currency mentioned is the price being
sought (also called base currency or the unit of
quotation)
– The second currency is the terms currency

Example: USD/AUD is the price of 1 US dollar in terms
of Australian dollars
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
21
15.5 Spot Market Quotations
(cont.)
• Two-way quotations
–
Example: Australian dollar/euro may be expressed
as AUD/EUR1.8155–1.8165, usually abbreviated to
AUD/EUR1.8155–65





The two numbers indicate the dealer’s buy and sell
price
The dealer will buy AUD1 for EUR1.8155
The dealer will sell AUD1 for EUR1.8165
Dealer ‘buys low’ and ‘sells high’
The difference between the buy and sell price is the
‘spread’
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
22
15.5 Spot Market Quotations
(cont.)
• Transposing spot quotations
–
Example: Given a quotation of AUD/EUR1.8275–1.8285
the EUR/AUD quotation can be determined by
transposing the quotation i.e. ‘reverse and invert’
Reverse the bid and offer prices: 1.8285–1.8275
Then take the inverse (divide both numbers into 1)
1.000
1.000
1.8285
1.8275
EUR/AUD0.5469–0.5472
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
23
15.5 Spot Market Quotations
(cont.)
• Calculating cross-rates
– Almost all currencies are quoted against the
USD and when transactions occur between two
non-USD currencies the cross-rate needs to be
calculated
– The procedure for calculating the cross-rate
varies depending on whether the USD is a


Direct quote—the USD is the base currency, or
Indirect quote—the USD is the terms currency and the
other currency is the base currency
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
24
15.5 Spot Market Quotations
(cont.)
–
Example 3:Crossing two direct FX quotations.
USD/EURO 9850 – 60
USD/JPY 11 540 – 50
To determine the EUR/JPY cross-rate:
118.40/0.9880 = 117.04
11550/0.9850 = 117.26
EUR/JPY 117.05 – 26
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
25
15.5 Spot Market Quotations
(cont.)
–
Example 4:Crossing a direct and indirect FX quotation.
USD/JPY 115.40 – 50
GBP/USD 1.5770 – 80
To determine the GBP/JPY cross-rate:
1.5570 x 115.40 = 181.99
1.5780 x 115.50 = 182.26
GBP/JPY 181.99 – 182.26
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
26
15.5 Spot Market Quotations
(cont.)
–
Example 5:Crossing two indirect FX quotations.
AUD/USD 0.5560 – 70
GBP/USD 1.5770 – 80
To determine the AUD/GBP cross-rate:
0.5560/1.5780 = 0.3523
0.5570/1.5770 = 0.3532
AUD/GBP 0.3523 – 32
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
27
Chapter Organisation
15.1
15.2
15.3
15.4
15.5
15.6
15.7
15.8
Introduction
FX Market Participants
Operation of the FX Market
Spot and Forward Transactions
Spot Market Quotations
Forward Market Quotations
European Monetary Union
Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
28
15.6 Forward Market
Quotations
• Forward points
– The forward exchange rate is the FX bid/offer
rates applicable at a specified date beyond the
spot value date
– The forward exchange rate varies from the spot
rate due to interest rate parity

Interest rate parity is the principle that exchange rates
will adjust to reflect interest rate differentials between
countries
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
29
15.6 Forward Market
Quotations (cont.)
• Forward points (cont.)
– Forward exchange rates are quoted as forward
points either above or below the spot rate



Forward points represent the forward exchange rate
variation to a spot rate base
If the forward points are rising, then add them to the spot
rate (i.e. forward premium)
If the forward points are falling, then subtract them from
the spot rate (i.e. forward discount)
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
30
15.6 Forward Market
Quotations (cont.)
• Forward points (cont.)
–
Example: Given AUD/USD (spot)
0.6930–0.6940
and six-month forward points:
0.0032–0.0027
Then, since the forward points are falling, subtract them
from the spot rate to obtain the six-month forward rate of
0.6898–0.6913
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
31
15.6 Forward Market
Quotations (cont.)
• Forward points (cont.)
Equations 15.2 and 15.3 in the textbook
demonstrate how a FX dealer calculates the bid offer
forward points
– These equations take into account
–


–
Interest rates in the two countries
The difference between bid and offer exchange rates i.e.
spread
Example 6 illustrates the application of equations
15.2 and 15.3
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
32
15.6 Forward Market
Quotations (cont.)
Example 6: An FX dealer is to calculate the bid and offer sixmonth forward points for the EUR/USD and has the following
information.
Bid
Offer
Spot EUR/USD
0.9850 0.9855
6-month US interest rates
5.60% 5.75%
6-month euro interest rates
3.85% 4.00%
–
Bid forward points
 180 
0.9850(0.0560  0.0400)

360


180 

1   0.0400

360


 77points
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
33
15.6 Forward Market
Quotations (cont.)
–
Example 6 (cont.):
Offer forward points
 180 
0.9855(0.0575  0.0385)

 360 
180 

1   0.0385

360 

 92 points
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
34
15.6 Forward Market
Quotations (cont.)
• Forward exchange contracts
FX dealers quote forward points on standard delivery
dates, usually monthly out to 12 months
– For a non-standard delivery period, a dealer will
calculate the forward rate taking into account the
current spot rate, domestic and foreign interest rates
and days in year as indicated in equation 15.4
–
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
35
15.6 Forward Market
Quotations (cont.)
• Forward exchange contracts (cont.)
contract days 

 1  ( It  ( days in year )) 
s

1  ( Ib  ( contract days )) 
days in year 

where :
S  spot rate
Ib  interest rate of base currency
It  interest rate of terms currency
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
(15.4)
36
15.6 Forward Market
Quotations (cont.)
• Some ‘real world’ complications
– The equations and examples illustrated are
simplified and do not take into account
complexities of the ‘real world’ financial markets
like




Differential interest rate basis
Interest withholding tax
Two-way quotations
Compound interest period
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
37
Chapter Organisation
15.1
15.2
15.3
15.4
15.5
15.6
15.7
15.8
Introduction
FX Market Participants
Operation of the FX Market
Spot and Forward Transactions
Spot Market Quotations
Forward Market Quotations
European Monetary Union
Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
38
15.7 European Monetary
Union (EMU)
• Currently, 12 of the 15 members of the EU are
participants in EMU
• As the EMU gains acceptance, the size and
liquidity EMU member equity and bond markets
will increase
• The EURO has become a hard currency like the
USD in that it is generally accepted in
international trade transactions
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
39
Chapter Organisation
15.1
15.2
15.3
15.4
15.5
15.6
15.7
15.8
Introduction
FX Market Participants
Operation of the FX Market
Spot and Forward Transactions
Spot Market Quotations
Forward Market Quotations
European Monetary Union
Summary
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
40
15.8 Summary
• FX market participants include companies, dealers,
central banks, investors, speculators and
arbitrageurs
• FX market instruments are usually either spot or
forward transactions
–
–
–
Which involve the quotation of the dealer’s buy-sell prices
Cross-rates calculations are necessary between 2 nonUSD currencies
Forward exchange rates are quoted as forward points
either above or below the spot rate
Copyright
Copyright
 2003
 2003
McGraw-Hill
McGraw-Hill
Australia
Australia
Pty Ltd
PtyPPTs
Ltd t/a
PPT Slides t/a Financial Institutions,
FinancialInstruments
Accountingand
by Willis
Markets 4/e by Christopher Viney
Slides
Slidesprepared
preparedbyby
Anthony
Kaye Watson
Stanger
41
Download