Chapter 2 - The foreign exchange market. After reading the material in this chapter, you should be able: To describe the basic features of the foreign exchange market, to identify market participants and traded currencies, to describe the australian foreign exchange market, to describe the mechanics and technology of foreign exchange trading, to introduce some exchange rate concepts, to illustrate foreign exchange position keeping, to introduce some foreign exchange jargon. | Lecture International finance An analytical approach 3 e Chapter 2 - Imad A. Moosa Chapter 2 The Foreign Exchange Market Objectives To describe the FX market To identify participants and currencies To describe the Australian FX market To describe the mechanics and technology of FX trading cont. Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 2-2 Objectives cont. To introduce some exchange rate concepts To illustrate FX position keeping To introduce some FX jargon Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 2-3 Definition The FX market is the market where national currencies are bought and sold against one another. Foreign exchange consists mainly of bank deposits. Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 2-4 Characteristics It is the largest and most perfect market It is needed because every international transaction requires a foreign exchange transaction It is an over-the-counter OTC market Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 2-5 Market participants Foreign exchange traders buy and sell currencies directly or indirectly Arbitragers exploit exchange rate anomalies hedgers cover open positions speculators take open positions Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 2-6 Categories of participants Customers Commercial banks Other financial institutions Brokers Central banks Copyright 2010 McGraw-Hill Australia Pty Ltd PPTs t a International Finance An Analytical Approach 3e by Imad A. Moosa Slides prepared by Afaf Moosa 2-7 Interbank .
