GMS 724 Study Guide - Midterm Guide: Bank, Futures Contract, Cme Group
30 Jan 2019
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The foreign-exchange trading process: let"s say that you"re u. s. company a, that you"ve received euros in payment for goods, and that you want to sell your euros in return for dollars. To make the exchange, you may contact your local bank or go directly to a money center bank: on the other hand, perhaps you"re u. s. company b and you expect to receive euros as a future payment. To protect yourself against fluctuations in the exchange rate, you want to buy euros that you can subsequently trade back for dollars. In the chart below, the left side shows what happens when u. s. company a needs to sell euros for dollars: this situation could arise when a receives payment in euros from a. German importer: the right side of the figure shows what happens when a needs to buy euros with dollars, this situation could arise when a company has to pay euros to a german supplier.
