Term
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Definition
| Society for Worldwide Interbank Financial Telecommunications |
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Term
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Definition
Wholesale Level (95%): Major banks
Retail Level: Business customers |
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Term
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Definition
Spot Market: Currency Now; immediate transaction, recorded 2nd business day
Forward Market: Currency in Future; transaction takes place at a specified future date |
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| Participants by Market: Spot Market |
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Definition
Commercial Banks
Brokers
Customers of commercial and central banks |
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| Participants By Market: Forward Market |
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Definition
Arbitragers
Traders
Hedgers
Speculators |
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Term
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Definition
| Clearing House Interbank Payments System, used in US for electronic fund transfers |
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Definition
Used for domestic transfers
Operated by the Federal Reserve |
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Term
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Definition
Automated, genuine screen based market.
Reduces cost, provides liquidity, threat to trader's oligopoly |
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Term
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Definition
Largest financial market in the world.
2004: 1.9 Trillion DAILY, 475 Trillion/YR
2007: 3.2 Trillion DAILY
Measured every three years. |
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Term
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Definition
Sources typically give 4 quotes: spot price, 30 day, 90 day, 180 day.
30, 90 + 180 considered forwards |
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Definition
Swaps: 53% of the market
FX Spot: 33%
Most Common Trade $ to Euro = 27% |
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| Method of Quotation (For interbank Dollar Trades:) |
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Definition
American Terms (Example): $1.21/E
European Terms (Example): Peso 1.713/1$ |
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Term
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Definition
Direct quote gives home currency price
Example: $1.81/LB |
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Term
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Definition
Effectively a FEE to convert
BID = The price at which the bank is willing to BUY
ASK = The price it will SELL the currency |
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Term
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Definition
PS = ((Ask - Bid)/Ask )X 100
(Percent Form) |
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Term
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Definition
| The exchange rates between 2 non-us currencies |
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Term
3 Types of Currency Arbitrage
(Arbitrage is capitalizing on a discrepancy in quote prices. |
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Definition
Locational:Happens when supply and demand conditions fora particular currency vary among banks
Triangular:Given a differential in cross rates.
Covered Interest:Investing in a foreign currency and "covering" against exchange rate risk. |
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Term
| Definition: Forward Contract |
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Definition
| Agreement between bank and customer to deliver specified amount of currency against another currency at a specified future date at a fixed exchange rate. |
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Term
| Forward Rate Quotations: 2 Methods |
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Definition
Outright Rate: Quoted to Commercial Customers
Swap Rate: Quoted in the interbank market as a discount or premium |
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