Chapter2 The Market for Foreign Exchange
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MarketforForeignExchange(国际财务管理,英文版)
Client Market (Retail)
Market participants include international banks, their customers, nonbank dealers, FOREX brokers, and central banks.
McGraw-Hill/Irwin
FOREX Market Participants
The FOREX market is a two-tiered market:
Interbank Market (Wholesale)
About 700 banks worldwide stand ready to make a market in Foreign exchange.
Spot Rate Quotations The Bid-Ask Spread Spot FX trading Cross Rates
McGraw-Hill/Irwin
4-8
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin
4-2
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Chapter Outline
Function and Structure of the FOREX Market
The Spot Market
4-6
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Correspondent Banking Relationships
Market participants include international banks, their customers, nonbank dealers, FOREX brokers, and central banks.
McGraw-Hill/Irwin
FOREX Market Participants
The FOREX market is a two-tiered market:
Interbank Market (Wholesale)
About 700 banks worldwide stand ready to make a market in Foreign exchange.
Spot Rate Quotations The Bid-Ask Spread Spot FX trading Cross Rates
McGraw-Hill/Irwin
4-8
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin
4-2
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Chapter Outline
Function and Structure of the FOREX Market
The Spot Market
4-6
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Correspondent Banking Relationships
Chapter_3_The_Foreign_Exchange_Market
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《国际金融学》The Foreign Exchange Market
• Exhibit 6.2 highlights the major trading centers that keep currency trading a 24-hour activity.
6-4
© 2013 Pearson Education, Inc. All rights reserved.
Exhibit 6.1 Measuring Foreign Exchange Market Activity: Average Electronic Conversions Per Hour
6-5
© 2013 Pearson Education, Inc. All rights reserved.
Chapter 6
The Foreign Exchange Market
The Foreign Exchange Market
• The Foreign Exchange Market provides:
– the physical and institutional structure through which the money of one country is exchanged for that of another country;
• Dealers use brokers to expedite the transaction and to remain anonymous, since the identity of participants may influence short-term quotes.
• As willing loss takers, central banks and treasuries differ in motive from all other market participants.
6-4
© 2013 Pearson Education, Inc. All rights reserved.
Exhibit 6.1 Measuring Foreign Exchange Market Activity: Average Electronic Conversions Per Hour
6-5
© 2013 Pearson Education, Inc. All rights reserved.
Chapter 6
The Foreign Exchange Market
The Foreign Exchange Market
• The Foreign Exchange Market provides:
– the physical and institutional structure through which the money of one country is exchanged for that of another country;
• Dealers use brokers to expedite the transaction and to remain anonymous, since the identity of participants may influence short-term quotes.
• As willing loss takers, central banks and treasuries differ in motive from all other market participants.
Chapter 5 The Market for Foreign Exchange (FX or FOREX)
The Market for Foreign Exchange (FX or FOREX)
Chapter 5
Lecture Objectives
• Introduce the institutional framework within which exchange rates are determined Lay the foundation for much of the discussion throughout the course
Structure of the FX Market
• The FX market is a two-tiered market:
Client Market (Retail)
• Non-financial companies; account about 17.8% in 2008. • Central banks, hedge funds, mutual funds, insurance companies, and pension funds account for 40.3%
•
Lecture Outline
• Structure of the FX Market • The Spot Market • The Forward Market
Structure of the FX Market
The FX market
• Involves market participants buying and selling of different currencies all over the world. • A worldwide network of traders, connected by telephone lines and computer screens – there is no central headquarters. Trading also occurs around the clock. • Includes trading currencies spot and forward, bank deposits of foreign currencies, foreign trade financing, trading in currency options, futures and swaps.
Chapter 5
Lecture Objectives
• Introduce the institutional framework within which exchange rates are determined Lay the foundation for much of the discussion throughout the course
Structure of the FX Market
• The FX market is a two-tiered market:
Client Market (Retail)
• Non-financial companies; account about 17.8% in 2008. • Central banks, hedge funds, mutual funds, insurance companies, and pension funds account for 40.3%
•
Lecture Outline
• Structure of the FX Market • The Spot Market • The Forward Market
Structure of the FX Market
The FX market
• Involves market participants buying and selling of different currencies all over the world. • A worldwide network of traders, connected by telephone lines and computer screens – there is no central headquarters. Trading also occurs around the clock. • Includes trading currencies spot and forward, bank deposits of foreign currencies, foreign trade financing, trading in currency options, futures and swaps.
第5章.the_foreign_exchange_market
课件制作：王晓静
第12页
（2）掉期率
远期差价的表示： 升水（at premium） 贴水（at discount） 平价（at par）
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第13页
远期汇水的表示方式和计算方法
远期汇水排列
辨别远期差价
计算方法 前大后小往下减 前小后大往上加
大/小（高/低） 直：贴水 / 间：升水 小/大（低/高） 直：升水 / 间：贴水
– Example: In 2001, around 90% of transactions between banks involved exchanges of foreign currencies for U.S. dollars.
课件制作：王晓静
第8页
§2 外汇交易概况
银行与客户之间的交易(retail rates) 银行同业之间的交易(wholesale
率)
(3)欧元年利率
课件制作：王晓静
第24页
2、已知：纽约市场年利率14%，伦敦市场年利率
10%，伦敦市场上即期汇率为£ /$2.4000 求：(1)3个月远期汇水 (2) 3个月远期汇率 (3)远期汇水折合年率
课件制作：王晓静
第25页
远期交易的目的 套期保值的需要(P332举例) 外汇投机的需要
1、既期对远期（SPOT AGAINST FORWARD） 2、远期对远期（FORWARD TO FORWARD）
课件制作：王晓静 第37页
（三）利息套汇Interest arbitrage
课件制作：王晓静
第38页
利息套汇两种情况：
不抵补套利 抵补套利
课件制作：王晓静 第39页
国际金融课件——第十四章
4
• Appreciation is an increase in the value of a currency relative to another currency.
– An appreciated currency is more valuable (more expensive) and therefore can be exchanged for (can buy) a larger amount of foreign currency.
– if dollars are cheaper in New York than in London, people will buy them in New York and stop buying them in London. The price of dollars in New York rises and the price of dollars in London falls, until the prices in the two markets are equal.
– How much does a Honda cost? ¥3,000,000 – Or, ¥3,000,000 x $0.0098/¥1 = $29,400
3
Depreciation and Appreciation
• Depreciation is a decrease in the value of a currency relative to another currency.
– in 1989 the daily volume of trading was $600 billion, in 2001 the daily volume of trading was $1.2 trillion.
• Appreciation is an increase in the value of a currency relative to another currency.
– An appreciated currency is more valuable (more expensive) and therefore can be exchanged for (can buy) a larger amount of foreign currency.
– if dollars are cheaper in New York than in London, people will buy them in New York and stop buying them in London. The price of dollars in New York rises and the price of dollars in London falls, until the prices in the two markets are equal.
– How much does a Honda cost? ¥3,000,000 – Or, ¥3,000,000 x $0.0098/¥1 = $29,400
3
Depreciation and Appreciation
• Depreciation is a decrease in the value of a currency relative to another currency.
– in 1989 the daily volume of trading was $600 billion, in 2001 the daily volume of trading was $1.2 trillion.
chap03-The Foreign Exchange Market-2
Telegraphic transfer
It’s often written in short form TT. For TT, spread is smaller because
less paper work is involved basically bank has no opportunity cost and risk of holding foreign currencies there’s no need for security precautions there’s no need to worry about the possibility of receiving counterfeit bills
Suppose HKD 7.8 = USD 1, fixed by HKMA and you buy 1 USD from the bank using HKD
1 USD
S(HKD/ ask USD)
(7.8 + z) HKD
z = the transaction cost the bank will charge you
S(HKD/USD)
JPY
S(HKD/JPY)
HKD1
>
HKD2
The Principle of No Arbitrage
If S(1/3) > S(1/2)S(2/3) and there is no transaction cost We can sell one unit of currency 3 for currency 1 at the rate of S(1/3) We can sell S(1/2)S(2/3) unit of currency 1 for currency 3 We gain S(1/3)-S(1/2)S(2/3) unit of currency 1 -- sure profit. Example: P40
MarketforForeignExchange(国际财务管理,英文版)
Forward Rate Quotations Long and Short Forward Positions Forward Cross-Exchange Rates Swap Transactions Forward Premium
McGraw-Hill/Irwin 4-4
Copyright © 2001 by The McGraw-Hill Companies, Inc. All righ
ቤተ መጻሕፍቲ ባይዱ
FOREX Market Participants
The FOREX market is a two-tiered market:
Interbank Market (Wholesale)
About 700 banks worldwide stand ready to make a market in Foreign exchange.
Correspondent Banking Relationships
Large commercial banks maintain demand deposit accounts with one another which facilitates the efficient functioning of the forex market.
The Forward Market
McGraw-Hill/Irwin 4-3
Copyright © 2001 by The McGraw-Hill Companies, Inc. All righ
Chapter Outline
Function and Structure of the FOREX Market The Spot Market The Forward Market
McGraw-Hill/Irwin 4-4
Copyright © 2001 by The McGraw-Hill Companies, Inc. All righ
ቤተ መጻሕፍቲ ባይዱ
FOREX Market Participants
The FOREX market is a two-tiered market:
Interbank Market (Wholesale)
About 700 banks worldwide stand ready to make a market in Foreign exchange.
Correspondent Banking Relationships
Large commercial banks maintain demand deposit accounts with one another which facilitates the efficient functioning of the forex market.
The Forward Market
McGraw-Hill/Irwin 4-3
Copyright © 2001 by The McGraw-Hill Companies, Inc. All righ
Chapter Outline
Function and Structure of the FOREX Market The Spot Market The Forward Market
Chapter_2__Foreign_Exchange_2
Chapter 2 Foreign Exchange
Cao Yongfeng 2015 Spring Semester
2.1 Foreign-Exchange Market 外汇市场
Foreign-exchange market 外汇市场
Organizational setting 组织形式
Transactions between commercial banks and their commercial customers商业银行与其商业客户之间 的交易 Domestic interbank market conducted through brokers国内银行借助经纪人进行同业市场交易 Active trading in foreign exchange with banks overseas 与国外银行的外汇交易
Slide 2-3
Business School
fsxycyf@
2.2 Types of Foreign-Exchange Transactions 外汇交易的类型
(1) Spot transaction 即期交易
ቤተ መጻሕፍቲ ባይዱ
Make an outright purchase or sale of a currency now, as in “on the spot” 直接买卖货币，当场 Immediate delivery 即期交割 Settlement date 交割日 Simplest way to meet your foreign currency requirements最简单的方式满足外汇需求 Greatest risk of exchange rate fluctuations汇率波 动的巨大风险
Cao Yongfeng 2015 Spring Semester
2.1 Foreign-Exchange Market 外汇市场
Foreign-exchange market 外汇市场
Organizational setting 组织形式
Transactions between commercial banks and their commercial customers商业银行与其商业客户之间 的交易 Domestic interbank market conducted through brokers国内银行借助经纪人进行同业市场交易 Active trading in foreign exchange with banks overseas 与国外银行的外汇交易
Slide 2-3
Business School
fsxycyf@
2.2 Types of Foreign-Exchange Transactions 外汇交易的类型
(1) Spot transaction 即期交易
ቤተ መጻሕፍቲ ባይዱ
Make an outright purchase or sale of a currency now, as in “on the spot” 直接买卖货币，当场 Immediate delivery 即期交割 Settlement date 交割日 Simplest way to meet your foreign currency requirements最简单的方式满足外汇需求 Greatest risk of exchange rate fluctuations汇率波 动的巨大风险
International Financial Markets——CHaper 2(课件发送2.2,2011)
CHAPTER 2 FOREIGN EXCHANGE MARKETS
2.3 Market Exchange Rate
Between 1870 and 1914, there was a global fixed exchange rate. Currencies were linked to gold, meaning that the value of a local currency was fixed at a set exchange rate to gold ounces. This was known as the gold standard. This allowed for unrestricted capital mobility as well as global stability in currencies and trade; however, with the start of World War I, the gold standard was abandoned. At the end of World War II, the conference at Bretton Woods, in an effort to generate global economic stability and increased volumes of global trade, established the basic rules and regulations governing international exchange. As such, an international monetary system, embodied in the International Monetary Fund (IMF), was established to promote foreign trade and to maintain the monetary stability of countries and therefore that of the global economy.
2.3 Market Exchange Rate
Between 1870 and 1914, there was a global fixed exchange rate. Currencies were linked to gold, meaning that the value of a local currency was fixed at a set exchange rate to gold ounces. This was known as the gold standard. This allowed for unrestricted capital mobility as well as global stability in currencies and trade; however, with the start of World War I, the gold standard was abandoned. At the end of World War II, the conference at Bretton Woods, in an effort to generate global economic stability and increased volumes of global trade, established the basic rules and regulations governing international exchange. As such, an international monetary system, embodied in the International Monetary Fund (IMF), was established to promote foreign trade and to maintain the monetary stability of countries and therefore that of the global economy.
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They are large nonbank financial institution and they are willing to carry inventory currency positions with which they can make speculative or arbitrage transactions.
a) Investment Banks b) Funds like Mutual (Pension) Funds
FX brokers
They match buying and selling orders, but do not take positions themselves.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
The Spot Market
Spot Rate Quotations The Bid-Ask Spread Spot FX trading Cross Rates
Country Argentina (Peso) Australia (Dollar) Brazil (Real) Britain (Pound) 1 Month Forward 3 Months Forward USD equiv Friday 0.3309 0.7830 0.3735 1.9077 1.9044 1.8983 USD equiv Thursday 0.3292 0.7836 0.3791 1.9135 1.9101 1.9038 Currency per USD Friday 3.0221 1.2771 2.6774 0.5242 0.5251 0.5268 Currency per USD Thursday 3.0377 1.2762 2.6378 0.5226 0.5235 0.5253
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Indirect Quotation
5-8
S(j/k) : the price of one unit of currency k in terms of currency j E.g. The following exchange rate is quoted in European or American terms?
5-4
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
What’s the difference between currency dealers and FX brokers ?
Nonbank dealers
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
The Forward Market
5-1
FX Market : A Preliminary
a) b)
A Brief Introduction of FX Market
a)
b)
S(£ /$) S($/£ ) From the perspective of U.S. (England)
5-9
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Spot Rate Quotations
Spot Rate Quotations
Country Argentina (Peso) Australia (Dollar) Brazil (Real) Britain (Pound) 1 Month Forward 3 Months Forward USD equiv Friday 0.3309 0.7830 0.3735 1.9077 1.9044 1.8983 USD equiv Thursday 0.3292 0.7836 0.3791 1.9135 1.9101 1.9038 Currency per USD Friday 3.0221 1.2771 2.6774 0.5242 0.5251 0.5268 Currency per USD Thursday 3.0377 1.2762 2.6378 0.5226 0.5235 0.5253
5-6
9:00 11:00 1:00 15:00 5:00 19:00 9:00 11:00 Asia Lunch Americas London New 6 pm in going out hour in coming in going out Zealand NY London coming in
5-0
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Outline
Function and Structure of the FX Market FX Market Participants The Spot Market Correspondent Banking Spot Rate Quotations The Forward Market Relationships The Spot Market The Bid-Ask Spread Forward Rate Quotations Spot FX Trading The Forward Market Positions Long and Short Forward
5-3
FX Market Participants
Market participants include international banks (bank currency traders), their customers, nonbank dealers, FX brokers, and central banks (national monetary authority).
About
Client Market (Retail)
Retail
transactions account for about 17% of FX trading volume.
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
5-7
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Spot Rate Quotations
Direct quotation
the price of one unit of the foreign currency in USD (the U.S. dollar equivalent) Be quoted in American terms e.g. ―a Australia dollar is worth about 78 cents‖ the price of a U.S. dollar in the foreign currency Be quoted in European terms e.g. ―one dollar is worth 1.28 AUD‖
Cross Exchange Rate Quotations Forward Cross-Exchange Rates Triangular Arbitrage Swap Transactions Spot Foreign Exchange Market Microstructure Forward Premium
1.2442 1.2442 1.2433 1.2412
0.5275
1.2395 1.2393 1.2385 1.2364
The direct quote for British pound is: £ = $1.9077 1
5-10
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
5-5
Circadian Rhythms of the FX Market
Electronic Conversations per Hour
average peak
45000 40000 35000 30000 25000 20000 15000 10000 5000 0 1:00 3:00 5:00 7:00 10 am in Lunch Europe Tokyo hour in coming in Tokyo
The FX Market is the largest financial market in the world. The spot and forward foreign exchange markets are overthe-counter (OTC) markets. The global FX Market is divided into 3 major market segments: Australasia, Europe, and North America. 24-hour-a-day currency trading follows the sun around the globnada (Dollar) 1 Month Forward 3 Months Forward 6 Months Forward