MAN-372OL-WRITTEN ASSIGNMENT 5-

MAN-372OL-WRITTEN ASSIGNMENT 5- - The Volatile Exchange...

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The Volatile Exchange Market in Great Britain 1 The Volatile Exchange Market in Great Britain Thomas Edison State College John Doe
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The Volatile Exchange Market in Great Britain 2 1.0 Introduction The numerous transactions that are performed by a variety of players including corporations, banks, and governments among other players require exchange of foreign currencies in order to pursue their international trade ambitions. Such exchanges are performed in a decentralized market called foreign exchange market. The foreign exchange market is therefore bestowed with the main function of facilitating the exchange of foreign currencies among the aforementioned market players. Typically, foreign exchange market aids both international trade as well as investments as market players are able to obtain certain amount of foreign currency using specified amount of local currency. “Currently, London forms the largest market for foreign trading globally with the U.S. dollar leading the foreign currencies traded in the UK followed by the Euro” (Amrhein, & Guithue, 1998, p. 1). Supply and demand forces in the market are the main determinants of the currency prices. However, such prices may be manipulated by some banks. Other functions of the foreign exchange market include facilitation of business and finance in a country by necessitating capital flows and international trade as well as enhancing competitiveness of the Great Britain in instances when the Pound has lost value against its trading partners such as the U.S., among other countries. “The foreign exchange market also provides hedging services to the concerned parties in order to transfer risks involved in the foreign exchange business to the other parties” (Amrhein, 2.0 Spot and forward exchange rates Spot exchange entails a transaction that usually takes place between two countries and has the shortest period in the foreign exchange market. According to David F. DeRosa (2000), “Spot foreign exchange contracts are agreements made between two parties to promptly trade a
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The Volatile Exchange Market in Great Britain 3 specified sum of currency. The transaction involves cash but excludes the interest in the transaction” (p. 2). Unlike spot exchange rate, forward exchange rate is quoted and traded but payments as well as delivery are effected in the future specified date. “This method of transaction entails an agreement made by the concerned parties to effect such payments at the stipulated dates” (DeRosa, 2000, p. 2). Both the aforementioned exchange rates are used as a benchmark to evaluate the
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This note was uploaded on 04/07/2012 for the course MANAGEMENT 301 taught by Professor ?? during the Spring '10 term at Thomas Edison State.

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MAN-372OL-WRITTEN ASSIGNMENT 5- - The Volatile Exchange...

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