BFB1001 Lecture Notes - Lecture 10: Commodity Currency, Eurocurrency, Local Currency
2 Aug 2018
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Document Summary
Exchange rates can be quoted in 2 ways : directly: the domestic currency is used as the term, indirectly: the foreign currency is used as the term. Spot rate: the exchange rate quoted for immediate settlement (to trade right now) of the commodity currency. Eurocurrency: a currency deposited in a bank or traded outside its country of origin. Euro-aussie is aud deposited and traded outside of australia; The eurocurrency markets are used by banks around the world as a source of overnight borrowing. The relevant interest rate is called libor, london interbank offered rate. Libor is typically 10 to 20 bps higher than the us federal reserve cash rate. Uncertainty in the value of foreign currency payments and earnings; arising from unexpected appreciation or depreciation of the foreign currency, in relation to the domestic currency or vice versa. Goods and services sold to foreign buyers. Goods and services bought from foreign are often paid for in a foreign currency.
