LEC I - THE MARKETS FOR CURRENCIES

LEC I - THE MARKETS FOR CURRENCIES - THE MARKETS FOR...

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THE MARKETS FOR CURRENCIES AND EXCHANGE RATES
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Foreign exchange markets Tourists, exporters/importers/investors etc. Commercial banks/financial clearing houses. Foreign exchange brokers/market makers. Central banks. .
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An exchange rate is usually defined as the # of units of domestic currency required to purchase one unit of the foreign currency. (in U.S e is in $/fc) Spot rate - rate that is quoted at the present time. Transaction are to be settled in 2 business days. If the currencies are freely floating (most major currencies) the exchange rate is determined by demand and supply for that currency (similar to other goods markets). Foreign exchange markets
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If the domestic price of a foreign currency increases, then domestic currency has depreciated (devalued) foreign currency has appreciated (revalued) Vice versa if the domestic price decreases. Analogy: Think about the price of any good/service. A trader at a U.S bank believes that the Chinese yuan will go from
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This note was uploaded on 11/07/2010 for the course ECON 0001 taught by Professor Kitsikopoulos during the Spring '08 term at NYU.

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LEC I - THE MARKETS FOR CURRENCIES - THE MARKETS FOR...

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