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Currencies_and_Exchange_Rates - Factors Inuencing Currency...

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Currencies and Exchange Rates: Part I Factors Influencing Currency Value Economic Factors 1. Balance of Payments 2. Interest Rates 3. Inflation 4. Monetary and Fiscal Policy 5. International Competitiveness 6. Monetary Reserves 7. Government Controls and Incentives 8. Importance of Currency in World Political Factors 9. Political Party and Leader Philosophies 10. Proximity of Elections or Change in Leadership Expectation Factors 11. Expectations 12. Forward Exchange Market Prices The foreign exchange (forex) market - It is almost a 24/7 market (except weekends and bank holidays) - USD $6 trillion worth of exchange daily for: - Trade - Investments - Speculation - Risk management - Tourism - The market is connected by high-speed computers; it’s actually more like one virtual market. - London was dominant because: - History (capital of the first major industrialized nation) - Geography (between Tokyo/Singapore and New York) - Now some shifts noticeable to Asia, specifically Hong Kong. 1 USD = xJPY
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1 EUR = xUSD Exchange rates - Spot “the current” relationship between two currencies: - Example: I EUR = USD 1.40 - Settlement for “spot” deals: - 2 business days for most currencies - 1 business day for USD with Canada or Mexico - Forward rate “the current” relationship between two currencies +/- premium for a future trade date
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