Lect09-International Financial Markets-VineyChptr15

Rate they will usually differ from the spot rate due

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Unformatted text preview: $0.9830 customer to the dealer at a price of A$1 (i.e. for the customer to receive A$1). The dealer will charge 16 (buy) US$0.9830 to supply A$1. • Forward exchange rates are used primarily to reduce exchange-rate risk, by locking in an exchange reduce by rate for a future transaction. rate – They will usually differ from the spot rate, due to the They differ due market’s expectations about the future direction of rates, etc. Commonly used for time periods of 1, 3 or 6 months. 1, – Forward contracts for periods exceeding 1 year are Forward unusual (only about 3% of all forward contracts). unusual – Forward exchange rates are often referenced via a Forward difference between the spot rate and the forward rate. This difference This difference is referred to as the ‘forward margin’ . . . difference fm = f - s – The difference (i.e. the forward margin) can be either + or The depending on the size of s and f (& see interest rate 17 parity, later). parity, Example of the forward margin method forward of quoting a forward...
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