Bài giảng "International financial management - Chapter six: Foreign exchange market" has contents: Spot market for foreign exchange, forward market for foreign exchange, market characteristics. | CHAPTER OVERVIEW CHAPTER SIX • Spot market for Foreign Exchange – Market characteristics FOREIGN EXCHANGE MARKET – Arbitrage • Forward market for Foreign Exchange – Why is it used – Market characteristics – Arbitrage 1 2 STRUCTURE OF FOREIGN EXCHANGE MARKETS ORGANIZATION OF THE FOREIGN EXCHANGE MARKET • Customer buy $ with € Local Bank Foreign exchange broker Stockbroker Major Banks Interbank market IMM LIFFE PSE Local Bank Stockbroker • THE PARTICIPANTS – Large commercial Bank – Foreign exchange brokers in the interbank market – Commercial customer: MNCs – Central Banks THE MAJOR PARTICIPANTS IN THE FORWARD MARKET – Arbitrageurs. – Traders – Hedgers – Speculators Customer buy € with $ CHAPTER 6 3 4 1 5 CHAPTER 4 6 LOCATIONAL ARBITRAGE • Mua nơi giá thấp và bán ở nơi giá cao hơn. • Thị trường điều chỉnh sẽ loại trừ cơ hội arbitrage 2-Jan-13 7 2-Jan-13 8 2 TRIANGULAR ARBITRAGE: WHEN IMPLIED & ACTUAL CROSS RATES ARE DIFFERENT LOCATIONAL ARBITRAGE PROFIT CASE 1: ARBITRAGE POSSIBLE CASE 1: NO ARBITRAGE POSSIBLE • • • New York Bank quotes: Chicago Bank quotes: – Ask $ – Ask $ – Bid $ – Bid $ • London Bank quotes: 1 BP = $ 1 SF = $ Implied cross rate: 1 BP = $ = If actual cross rate: 1 BP = SF (It is better to sell BP in return for SF) If actual cross rate: 1 BP = SF (It is better to buy BP with SF) $ $ Berlin Bank quotes: – Ask $ – Ask $ – Bid $ – Bid $ BP 2-Jan-13 9 THE SPOT MARKET CURRENCY ARBITRAGE – For example, suppose we observed the following for the Mexican peso (Ps) and the Swiss franc (SF): SF BP SF 2-Jan-13 10 THE SPOT MARKET CURRENCY ARBITRAGE – Ví dụ, suppose the exchange rate for the British pound and Swiss Franc Ps per $1 = in Mexico SF per $1 = in New York Ps per SF1= in Zurich – Pound per $1 in
