Lesson_50_Introduction to the Foreign Exchange Market

Lesson_50_Introduction to the Foreign Exchange Market -...

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1 Lesson 50 1 Introduction to the Foreign Exchange Market Different countries use different currencies In order to undertake international transactions, currency from one country has to be traded for currency of another These trades take place in the FX market This lesson introduces institutions and scope of market Lesson 50 2 An exchange rate is the price of one currency in terms of another e.g., 117 yen per dollar e.g., $1.90 per pound sterling The price of a British pound is $1.90 The price of a dollar is 117 yen Lesson 50 3 From U.S. perspective, exchange rate can be quoted as dollars per unit of foreign currency, or foreign currency units per dollar The latter is known as “European” terms or “indirect” terms (even when the other currency is not European) The former is known as “American” terms or “direct” terms
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