Chapter 12 Notes - Chapter 12 ECON 3110 Definitions...

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Chapter 12 ECON 3110
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Definitions Seigniorage Debasing Fiat money Purchasing power Exchange rate
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Exchange Rate Markets Nearly all of the trillion dollars worth of currencies that are exchanged every working day are traded in the over-the-counter market. Worldwide, 2,772 dealer institutions reported that they were active in the foreign exchange markets in 2000. According to the Federal Reserve Bank of New York, there were 93 major foreign exchange dealers operating in the United States in 1998, 82 of which were large commercial banks. There were 213 major dealers in London, the most important center for foreign exchange transactions.
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Foreign Exchange Supply and Demand Arbitrage: Buying low selling high Helps markets find equilibrium Exchange rates are virtually identical across the world 200 different currencies in the world implies 19,900 different exchange rates Triangular Arbitrage reduces the exchange rates traders have to deal with to a more practical 199. p NY p SF Arbitrage and Price Equalization p US P P Violins Violins New York San Francisco
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Foreign Exchange Supply and Demand Foreign Exchange Rate (e): Foreign Currency/ Domestic Currency Demand for Fx: Domestic Importers, Domestic Financial Investors Supply of Fx: Foreign Importers, Foreign Financial Investors Symmetry: Demand for Foreign Currency=Supply of Domestic Currency Supply of Foreign Currency=Demand for Domestic Currency
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  • Spring '14
  • JohnM.Mbaku
  • Exchange Rate, Foreign exchange market, foreign exchange markets

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