MGEC61H3 Chapter Notes - Chapter 3: Foreign Exchange Spot, Forward Exchange Rate, Foreign Exchange Market
24 Feb 2018
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Exchange rates and the foreign exchange market: an asset approach. Exchange rate: the price of one currency in terms of another. Direct (american) terms: dollars per foreign currency unit. Indirect (european) terms: foreign currency units per dollar. The market in which international currency trades take place. Vehicle currency is one that is widely used to denominate international contracts made by parties who do not reside in the country that issues the vehicle currency. Spot rates and forward rates: on-the-spot aka spot exchange rate: exchange rates that are most current now, forward exchange rate: the exchange rates quoted for a specified future transaction date. Used to reduce or avoid foreign currency risk: often both rates move closely together. Assets and asset returns: judge the desirability of an asset largely on the basis of its rate of return. Often cannot know with certainty the return that an asset will actually pay after the purchase. Can judge by the expected rate of return.
