ECON231 Lecture Notes - Lecture 13: Foreign Exchange Market, Foreign Exchange Spot, Interest Rate
19 Apr 2018
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Chapter 14 exchange rate & foreign exchange market. Exchange rate foreign currency per unit of domestic currency: depreciation makes import expensive & export cheap, appreciation makes import cheap & export expensive. Foreign exchange market set of markets where foreign currencies and other assets are exchanged for domestic ones. Buying & selling in the foreign exchange market are dominated by commercial and investment banks: central banks sometimes intervene, but direct effects of their transactions are small and transitory in many countries. Technology allows for the transmission of information rapidly & have integrated markets. Integration implies that there can be no significant differences in exchange rates across locations. Spot rate exchange rates for currency exchanges on the spot or when trading is executed in the present. Forward rate exchange rates for currency exchanges that will occur at a future date (30,90,180,360 days in future: rates are negotiated between two parties in the present, but exchange occurs in future.
