13+Intro+to+Foreign+Exchange

13+Intro+to+Foreign+Exchange - Introduction to Foreign...

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Introduction to  Foreign Exchange SM122 Professor Mark Roberts March 18, 2009
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Agenda Foreign Exchange Quotations Foreign Exchange Movements Why So What Risks to Individuals & Companies
Background image of page 2
Quotation Conventions Spot Rates: Current market “price” of  one currency  in terms of  another  currency  “Currency Cross” “Price” depends on which side of the table you are on! How many US$ for each EURO How many EURO for each US$ Let’s see!          WSJ.com
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Quotation Conventions Units of one currency per unit of other currency Example:  IF 1 EURO (E) cost $1.25, THEN: Spot  E/$  = .80 Spot  $/E  = 1.25 NOTE:    Spot  E/$  = 1 / Spot  $/E
Background image of page 4
Quotation Conventions Forward Rate Exchange rate agreed upon TODAY for exchange of  currency at given point in the FUTURE Quoted as Units of one currency per unit of other currency Check it out!
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Appreciation, Depreciation If US$  APPRECIATES  versus the EURO Strengthening currency (US$) means  Less US$ needed to buy one EURO More EURO needed to buy on US$
Background image of page 6
Appreciation, Depreciation If US$  DEPRECIATES  versus the EURO Weakening currency (US$) means More US$ needed to buy one EURO Less EURO needed to buy one US$
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
And the other way around!
Background image of page 8
Why do exchange rates move? Supply and Demand Demand for currencies related to: Trade Relative prices of goods and services Financial investment Relative level of interest rates Rates of return
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Two Theories Purchasing Power Parity Currency rates change in relation to relative changes in  prices of goods and services Interest Rate Parity Currency rates change in relation to relative differences in  interest rates
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 31

13+Intro+to+Foreign+Exchange - Introduction to Foreign...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online