Table of Contents
Chapter 13
Importance
PPT Slide
Objectives of this Chapter
Exchange rates can be quoted in:
To convert from the direct to the indirect terms, compute the reciprocal
Exchange Rates allow us to convert a price in one currency into another currency
Changes in exchange rates are described as deprecations and appreciations. A depreciation of the pound against the dollar means the pound price of a dollar goes up. E.g. from £0.5992 = $1 to £0.5999 = $1 or at the same time dollar price of a pound goes down. E.g. $1.6690 = £1 to $1.6670 = £1
An Appreciation of Currency X
Depreciation of currency Z
Impact of exchange rate changes:
Impact in U.S. market.
The actors in the foreign exchange market.
The vast majority of foreign exchange transactions involve the exchange of bank deposits denominated in different currencies.
See: http://www.chips.org
Characteristics of F. Exchange Market
Spot and Forward rates
Forward Rates
Buying dollars “forward”
Use of forward rates
Risk
Foreign Exchange Swaps
Foreign Exchange Swap Example
Futures and Options
A Foreign Exchange Option
Foreign Exchange Option
A Put Option
Put option example:
Spot quote: $.008469 = ¥1 and ¥118.08 = $1
Buying a Put option as Protection against risk of depreciation
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