Contractscanbeboughtandsoldinmarketsandonlythe

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Unformatted text preview: 360 days in the future. – Rates are negotiated between two parties in the present, but the exchange occurs in the future. Fig. 13-1: Dollar/Pound Spot and Forward Exchange Rates, 1981– Forward 2007 2007 Source: Datastream. Rates shown are 90-day forward exchange rates and spot exchange rates, at end of month. Other Methods of Currency Exchange Exchange Foreign exchange swaps: a combination of a spot sale with a forward repurchase. – Swaps often result in lower fees or transactions costs because they combine two transactions, and they allow parties to meet each others needs for a temporary amount of time. Futures contracts: a contract designed by a third party for a standard amount of foreign currency delivered/received on a standard date. – Contracts can be bought and sold in markets, and only the current owner is obliged to fulfill the contract. Other Methods of Currency Exchange Exchange Options contracts: a contract designed by a third party for a standard amount of foreign currency delivered/received on or before a standard date. – Contracts can be bought and sold in markets. – A contract gives the owner the option, but not obligation, of buying or selling currency if the need arises. The Demand of Currency Deposits Deposits What influences the demand of (willingness to buy) deposits denominated in domestic or foreign currency? Factors that influence the return on assets determine the demand of those assets....
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