MAF101 Lecture Notes - Lecture 9: Profit Margin, Yasser Arafat, Algorithmic Trading
Document Summary
Main functions of fx markets are: to facilitate cross-currency payments arising from imports, exports and financing flows, to reveal the value of currency, to allow traders to manage their fx risks. We consider the fx market a wholesale market. It is by far the largest financial market when valued by turnover. Global fx turnover averages . 1 trillion usd per day. An exchange rate is the price of one currency in terms of another. The floating of the currency requires businesses to understand fx risk. The price of a currency is always expressed in terms of another currency. The commodity base currency (the currency being bought and sold) is quoted first. For example: aud/usd 0. 9595 = 1 aud in terms of usd. The quote can be rewritten by finding the reciprocal: Usd/aud = 1/0. 9595 = 1. 0422 = 1 usd in terms of aud. Direct quote = domestic currency per unit of foreign currency.
