The Foreign Exchange Market
The Spaniards coming into the West Indies had many commodities of the country which they needed, brought unto them by the inhabitants, to who when they offered them money, goodly pieces of gold coin, the Indians, taking the money, would put it into their mouths, and spit it out to the Spaniards again, signifying that they could not eat it, or make use of it, and therefore would not part with their commodities for money, unless they had such other commodities as would serve their use.
EDWARD LEIGH (1671)
LEARNING OBJECTIVES
- To describe the organization of the foreign exchange market and distinguish between the spot and forward markets
- To distinguish between different methods of foreign exchange quotation and convert from one method of quotation to another
- To read and explain foreign currency quotations as they appear in the Wall Street Journal
- To identify profitable currency arbitrage opportunities and calculate the profits associated with these arbitrage opportunities
- To describe the mechanics of spot currency transactions
- To explain how forward contracts can be used to reduce currency risk
- To list the major users of forward contracts and describe their motives
- To calculate forward premiums and discounts
The volume of international transactions has grown enormously over the past 65 years. Exports of goods and services by the United States now total ...
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