BUSI2025 Chapter Notes - Chapter 10: Foreign Exchange Risk, Foreign Exchange Spot, Japanese Yen
Document Summary
The foreign exchange market: is used to convert the currency of one country into the currency of another, provides some insurance against foreign exchange risk the adverse consequences of unpredictable changes in exchange rates. The exchange rate is the rate at which one currency is converted into another: events in the foreign exchange market affect firm sales, profits and strategy. Size of the foreign-exchange market: the us dollar is most important currency on the foreign-exchange market, the euro and japanese yen now occupy less of the market than in 2013. Frequently traded currency pairs: top two pairs include eur/usd and usd/jpy, aud/usd accounts for 43% of australian daily fx turnover. To insure or hedge against a possible adverse foreign exchange rate movement, firms engage in forward exchanges: two parties agree to exchange currency and execute the deal at some specific date in the future.
