[New York Times, 9-24-00]
“To the disappointment of many European bankers, American officials refrained from speaking out strongly in support of a stronger euro and raised doubts about their willingness to intervene forcefully in currency markets by selling dollars or buying euros.”
The Spot Market [Foreign Exchange]
Foreign exchange quotes: trades among dealers in the interbank market transactions: $1 million or more “Use your credit cards!”(?)
“Rescue ...for the Euro Falls Short…”
[New York Times, 9-24-00]
“The market badly needs a statement from the Americans that the euro is substantially undervalued and the dollar is substantially overvalued,” Mr. Friedrich said.”
▪ Example:
▪ Ex: $1 =
▪ SFr1 = $0.8672
SFr 1.1531
The Spot Market [Foreign Exchange]
Direct Quotation: home currency price of foreign currency Example: (France) FF 3.3862 = 1 DM (Germany) DM 0.29531 = 1 FF
Calculating Cross Rates
Yen: ¥120.18 / U. S. $1 Won: W1,186.94 / U. S. $1 ¥/$ ÷ W/$ = ¥/W ¥120.18 ÷ W1,186.94 = ¥0.10125 / W1
The Spot Market [Foreign Exchange]
Bob LeClair's Finance and Markets Newsletter
For the Week Ending:
Change
1/1/09
3/7/09
3/14/09
(Week)
Dow Jones Ind. Avg.
8,776
6,627
7,224
597
(% Change)
9.01%
S & P 500 Index
The Foreign Exchange Market
electronically linked network Society for Worldwide Interbank Financial Telecommunications (SWIFT) trade volume – 5% capital transactions – 95%
The Foreign Exchange Market
interbank market (95% of transactions) wholesale market major banks (20) as traders spot market: two day delivery (35%) forward market: future delivery (12%) swaps: spot + forward (53%)
Newspaper Listing
Currency Cross-Rates
“The exchange rate between two currencies, neither of which is the U. S. dollar, calculated by using the dollar rates for both ies with Highest Remittance Outflows, $Billions, 2005
$45 $40 $35 $30 $25 $20 $15 $10
$5 $0
SSauwiGdtiezreArrlmUaaaSbninAyda LuxemRSbusposauiirang NethMearllaaItynaslidysa
The Foreign Exchange Market
Participants – large commercial banks – foreign exchange brokers – multinational corporations – central banks
ORGANIZATION OF THE FOREIGN EXCHANGE MARKET
$1.3947 90.84 $38.95 $1.61
$1.2652 98.27 $45.28 $1.93
$1.2928 98.02 $46.91 $1.94
$0.0276 -0.25 $1.63 $0.01
-$0.1019 7.18 $7.96 $0.33
“Rescue ...for the Euro Falls Short…”
The Spot Market [Foreign Exchange]
Indirect Quotation: value of one unit of home currency in the foreign currency Example:
(England) £1 = $ 1.6698
Currency Exchange Rates and Cross Rates
Transaction costs: Bid (buy) - Ask (sell) spread Percent spread = ([Ask Price - Bid Price] / Ask Price) X 100 Typical Spread: 0.1 - 0.5%
“Rescue ...for the Euro Falls Short…”
[New York Times, 9-24-00]
“… the amount of money used to intervene … was very modest. The ECB gave no clue about the magnitude of its campaign to buy euros or sell other currencies, but currency experts and traders have estimated that the amount was about $6 billion or $7 billion.”
5.10% 4.83% 4.85% 0.25%
5.15% 4.72% 4.86% 0.29%
5.03% 4.64% 4.80% 0.23%
-0.12% -0.08% -0.06% -0.06%
-0.07% -0.19% -0.05% -0.02%
$ Value of Euro (€) Japanese Yen (¥) / $ Crude Oil, Spot Price Gasoline, Reg. ($/Gal.)
American Terms: number of U. S. $ per unit of foreign currency Example: SFr 1 = $0.8672
The Spot Market [Foreign Exchange]
European Terms: number of foreign currency units per U. S. $ Example: $1 = SFr 1.1531 Verify: $1 / 1.1531 = $0.8672
Countries with Highest Remittance Inflows, $Billions, 2005
$25 $20 $15 $10
$5 $0
India PhiliFpMrCpeaihxinnicnceeaso
BelSgipuainm GLeerbaUm.naonK.yn
The Spot Market [Foreign Exchange]
“Rescue ...for the Euro Falls Short…”
[New York Times, 9-24-00]
“Psychology and timing may ultimately be more important to the future of the euro than the amounts of money used by the world’s central banks on its behalf.”
2.68% 2.21% 0.07% 2.61%
3.55% 2.87% 0.20% 3.35%
3.67% 2.89% 0.19% 3.48%
0.12% 0.02% -0.01% 0.13%
0.99% 0.68% 0.12% 0.87%
30-Year Mortgage 15-Year Mortgage 1-Year Adjustable Rate 30-Yr. - 1-Yr. ARM Rate
903
683
757
73
(% Change)
10.71%
NASDAQ Composite
1,577
1,294
1,432
138
(% Change)