Chapter 15 Foreign Exchange Market: Participants and Mechanics Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger.
Download ReportTranscript Chapter 15 Foreign Exchange Market: Participants and Mechanics Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger.
Chapter 15 Foreign Exchange Market: Participants and Mechanics Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 1 Learning Objectives • Identify participants in foreign exchange (FX) markets • Describe functions and operations of FX markets • Outline instruments traded in FX markets • Explain conventions for quotation and calculation of exchange rates and forward exchange rates Identify participants in foreign exchange (FX) markets Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 2 Chapter Organisation 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 Introduction FX Market Participants Operation of the FX Market Spot and Forward Transactions Spot Market Quotations Forward Market Quotations European Monetary Union Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 3 15.1 Introduction • FX markets comprise all financial transactions denominated in foreign currency, currently estimated to be USD1.5 trillion per day • Facilitate exchange of value from one currency to another • Internationally adopted FX market conventions to improve market functionality Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 4 Chapter Organisation 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 Introduction FX Market Participants Operation of the FX Market Spot and Forward Transactions Spot Market Quotations Forward Market Quotations European Monetary Union Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 5 15.2 FX Market Participants • FX market participants can be classified as – Firms conducting international trade transactions – FX dealers – Central banks – Investors and borrowers – Speculative transactions – Arbitrage transactions Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 6 Firms conducting international trade transactions • Exporters receive foreign currency for the sale of their goods and services • Exporters use the FX market to sell foreign currency and buy AUD • Importers use the FX market to buy foreign currency (sell AUD) to be used for purchasing imports Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 7 FX dealers • Are financial institutions that are licensed or authorised by the central banks of the countries in which they operate • Quote two-way (i.e. buy and sell) prices • There are also FX brokers who transact almost exclusively with FX dealers Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 8 Central banks • Enter FX market to – Purchase foreign currency to pay for imports or interest on foreign debt – Change the composition of holdings of foreign currencies – Influence the exchange rate Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 9 Investors and borrowers • Commercial bank foreign borrowings are usually converted into the home currency • Corporations and financial institutions investing overseas – – Need to purchase FX in order to make the investments Dividends or interest payments received from overseas investments will be denominated in a foreign currency Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 10 Speculative transactions • Businesses and financial institutions may attempt to anticipate future exchange rate movements to make a profit • There is a risk involved that the exchange rate will either move – – In the opposite direction to that anticipated In the anticipated direction but by less than expected Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 11 Speculative transactions (cont.) – Example If, today: Spot rate: USD1= AUD1.65 Exchange rate expected today + n days: USD1= AUD1.70 Then, today: Buy USD1 at a cost of AUD1.65 Then, at today + n days: Sell USD1 and obtain AUD1.70 Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 12 Arbitrage transactions • Profit is made through FX transactions that involve no FX risk exposure • Types of arbitrage – – Locational—where two dealers quote different rates on the same currency Triangular—occurs when exchange rates between three or more currencies are out of perfect alignment Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 13 Arbitrage transactions (cont.) Example: Triangular arbitrage USD1 = AUD1.65 USD1 = SGD1.65 AUD1 = SGD 0.97 Arbitrage strategy Sell AUD1.65 and receive USD1 Sell USD1 to receive SGD1.65 Sell SGD1.65 to receive AUD1.70 Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 14 Chapter Organisation 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 Introduction FX Market Participants Operation of the FX Market Spot and Forward Transactions Spot Market Quotations Forward Market Quotations European Monetary Union Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 15 15.3 Operation of the FX Market • The FX market – Is a global market, operating 24 hours a day according to business hours across the time zones – Consists of a vast and highly sophisticated global network of telecommunications systems that provide the current buy and sell rates for various currencies in dealing rooms located around the globe Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 16 Chapter Organisation 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 Introduction FX Market Participants Operation of the FX Market Spot and Forward Transactions Spot Market Quotations Forward Market Quotations European Monetary Union Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 17 15.4 Spot and Forward Transactions • FX market instruments are typically – Spot transactions Have maturity date two business days after the FX contract is entered into • – e.g. used if an Australian importer has an account in USD to pay within the next few days Forward transactions Have maturity date more than two days after FX contract is entered into • e.g. used if Australian importer has to pay a USD liability in 2 months Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 18 15.4 Spot and Forward Transactions (cont.) • Dealers may also provide short-dated transactions if necessary ‘Tod’ value transactions: same-day settlement – ‘Tom’ value transactions: settlement tomorrow – Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 19 Chapter Organisation 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 Introduction FX Market Participants Operation of the FX Market Spot and Forward Transactions Spot Market Quotations Forward Market Quotations European Monetary Union Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 20 15.5 Spot Market Quotations • Asking for a quotation – The price of currency is expressed in terms of another currency – The first currency mentioned is the price being sought (also called base currency or the unit of quotation) – The second currency is the terms currency Example: USD/AUD is the price of 1 US dollar in terms of Australian dollars Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 21 15.5 Spot Market Quotations (cont.) • Two-way quotations – Example: Australian dollar/euro may be expressed as AUD/EUR1.8155–1.8165, usually abbreviated to AUD/EUR1.8155–65 The two numbers indicate the dealer’s buy and sell price The dealer will buy AUD1 for EUR1.8155 The dealer will sell AUD1 for EUR1.8165 Dealer ‘buys low’ and ‘sells high’ The difference between the buy and sell price is the ‘spread’ Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 22 15.5 Spot Market Quotations (cont.) • Transposing spot quotations – Example: Given a quotation of AUD/EUR1.8275–1.8285 the EUR/AUD quotation can be determined by transposing the quotation i.e. ‘reverse and invert’ Reverse the bid and offer prices: 1.8285–1.8275 Then take the inverse (divide both numbers into 1) 1.000 1.000 1.8285 1.8275 EUR/AUD0.5469–0.5472 Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 23 15.5 Spot Market Quotations (cont.) • Calculating cross-rates – Almost all currencies are quoted against the USD and when transactions occur between two non-USD currencies the cross-rate needs to be calculated – The procedure for calculating the cross-rate varies depending on whether the USD is a Direct quote—the USD is the base currency, or Indirect quote—the USD is the terms currency and the other currency is the base currency Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 24 15.5 Spot Market Quotations (cont.) – Example 3:Crossing two direct FX quotations. USD/EURO 9850 – 60 USD/JPY 11 540 – 50 To determine the EUR/JPY cross-rate: 118.40/0.9880 = 117.04 11550/0.9850 = 117.26 EUR/JPY 117.05 – 26 Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 25 15.5 Spot Market Quotations (cont.) – Example 4:Crossing a direct and indirect FX quotation. USD/JPY 115.40 – 50 GBP/USD 1.5770 – 80 To determine the GBP/JPY cross-rate: 1.5570 x 115.40 = 181.99 1.5780 x 115.50 = 182.26 GBP/JPY 181.99 – 182.26 Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 26 15.5 Spot Market Quotations (cont.) – Example 5:Crossing two indirect FX quotations. AUD/USD 0.5560 – 70 GBP/USD 1.5770 – 80 To determine the AUD/GBP cross-rate: 0.5560/1.5780 = 0.3523 0.5570/1.5770 = 0.3532 AUD/GBP 0.3523 – 32 Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 27 Chapter Organisation 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 Introduction FX Market Participants Operation of the FX Market Spot and Forward Transactions Spot Market Quotations Forward Market Quotations European Monetary Union Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 28 15.6 Forward Market Quotations • Forward points – The forward exchange rate is the FX bid/offer rates applicable at a specified date beyond the spot value date – The forward exchange rate varies from the spot rate due to interest rate parity Interest rate parity is the principle that exchange rates will adjust to reflect interest rate differentials between countries Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 29 15.6 Forward Market Quotations (cont.) • Forward points (cont.) – Forward exchange rates are quoted as forward points either above or below the spot rate Forward points represent the forward exchange rate variation to a spot rate base If the forward points are rising, then add them to the spot rate (i.e. forward premium) If the forward points are falling, then subtract them from the spot rate (i.e. forward discount) Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 30 15.6 Forward Market Quotations (cont.) • Forward points (cont.) – Example: Given AUD/USD (spot) 0.6930–0.6940 and six-month forward points: 0.0032–0.0027 Then, since the forward points are falling, subtract them from the spot rate to obtain the six-month forward rate of 0.6898–0.6913 Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 31 15.6 Forward Market Quotations (cont.) • Forward points (cont.) Equations 15.2 and 15.3 in the textbook demonstrate how a FX dealer calculates the bid offer forward points – These equations take into account – – Interest rates in the two countries The difference between bid and offer exchange rates i.e. spread Example 6 illustrates the application of equations 15.2 and 15.3 Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 32 15.6 Forward Market Quotations (cont.) Example 6: An FX dealer is to calculate the bid and offer sixmonth forward points for the EUR/USD and has the following information. Bid Offer Spot EUR/USD 0.9850 0.9855 6-month US interest rates 5.60% 5.75% 6-month euro interest rates 3.85% 4.00% – Bid forward points 180 0.9850(0.0560 0.0400) 360 180 1 0.0400 360 77points Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 33 15.6 Forward Market Quotations (cont.) – Example 6 (cont.): Offer forward points 180 0.9855(0.0575 0.0385) 360 180 1 0.0385 360 92 points Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 34 15.6 Forward Market Quotations (cont.) • Forward exchange contracts FX dealers quote forward points on standard delivery dates, usually monthly out to 12 months – For a non-standard delivery period, a dealer will calculate the forward rate taking into account the current spot rate, domestic and foreign interest rates and days in year as indicated in equation 15.4 – Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 35 15.6 Forward Market Quotations (cont.) • Forward exchange contracts (cont.) contract days 1 ( It ( days in year )) s 1 ( Ib ( contract days )) days in year where : S spot rate Ib interest rate of base currency It interest rate of terms currency Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger (15.4) 36 15.6 Forward Market Quotations (cont.) • Some ‘real world’ complications – The equations and examples illustrated are simplified and do not take into account complexities of the ‘real world’ financial markets like Differential interest rate basis Interest withholding tax Two-way quotations Compound interest period Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 37 Chapter Organisation 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 Introduction FX Market Participants Operation of the FX Market Spot and Forward Transactions Spot Market Quotations Forward Market Quotations European Monetary Union Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 38 15.7 European Monetary Union (EMU) • Currently, 12 of the 15 members of the EU are participants in EMU • As the EMU gains acceptance, the size and liquidity EMU member equity and bond markets will increase • The EURO has become a hard currency like the USD in that it is generally accepted in international trade transactions Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 39 Chapter Organisation 15.1 15.2 15.3 15.4 15.5 15.6 15.7 15.8 Introduction FX Market Participants Operation of the FX Market Spot and Forward Transactions Spot Market Quotations Forward Market Quotations European Monetary Union Summary Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 40 15.8 Summary • FX market participants include companies, dealers, central banks, investors, speculators and arbitrageurs • FX market instruments are usually either spot or forward transactions – – – Which involve the quotation of the dealer’s buy-sell prices Cross-rates calculations are necessary between 2 nonUSD currencies Forward exchange rates are quoted as forward points either above or below the spot rate Copyright Copyright 2003 2003 McGraw-Hill McGraw-Hill Australia Australia Pty Ltd PtyPPTs Ltd t/a PPT Slides t/a Financial Institutions, FinancialInstruments Accountingand by Willis Markets 4/e by Christopher Viney Slides Slidesprepared preparedbyby Anthony Kaye Watson Stanger 41