1. Currency Markets (when the daisy chain unwinds) Flashcards
what is BOJ
Bank Of Japan
What is ECB
European Central Bank
What is PBOC
Peoples Bank Of China
List things the Treasury does
- Prints monet
- offer economical advice to the president
- established in 1789 (oldest)
- collects taxes and managing government revenue
- responsible for printing currency and minting coins.
List things the Federal Reserve does (central bank)
- established in 1913
- serves as the central bank of the U.S.
- mandate to “keep our money valuable and our financial system healthy.”
- ensurs that lenders and borrowers have access to money and credit
- balances the access to money through adjustments to the discount rate and federal funds rate to keep inflation in check.
The Federal Reserve is a nonprofit company.
what are the main differences between the treasury and the federal reserve
- the federal reserve is the governments banker
the federal reserv:
accepts electronic payments for Social Security taxes, issuing payroll checks to government employees and clearing checks for tax payments and other government receivables.
The Federal Reserve issues U.S. Treasury securities and conducts Treasury securities auctions, to raise cash for
the securities are sold on behalf of the Department of the Treasury.
The Federal Reserve is a nonprofit company.
After its expenses are paid, any remaining profits are paid to the Department of the Treasury.
The Department of the Treasury then uses that money to fund government spending. It’s a relationship that produces a considerable amount.
the Federal Reserve not only helps to make and implement policies, but it also serves as the government’s bank and generates a portion of the revenue used to fund the country’s activities.
What is a Primary Dealer
A primary dealer is a bank or other financial institution that has been approved to trade securities with a national government.
Primary government securities dealers sell the Treasury securities that they buy from the central bank (reserve bank) to their clients, creating the initial market.
A firm must meet specific capital requirements before it can become a primary dealer.
Some of the best-known primary dealers in the United States include J.P. Morgan, Barclays Capital, Wells Fargo, and Citigroup.
what is a Market Maker
A market maker is a individual market participant or member firm of an exchange that also buys and sells securities for its own account, at prices it displays in its exchange’s trading system, with the primary goal of profiting on the bid-ask spread, which is the amount by which the ask price exceeds the bid price a market asset.
The most common type of market maker is a brokerage house that provides purchase and sale solutions for investors in an effort to keep financial markets liquid.
Market makers are compensated for the risk of holding assets because they may see a decline in the value of a security after it has been purchased from a seller and before it’s sold to a buyer.
What is JGB
Japanese Government Bond
what is a dollar fund squeeze
USD going up and up due to increasing demand feeding on itself
what is mizuho
one of Japans leading banks
what is a BtB
back to back loan
when two companies in different countries borrow offsetting amounts from one another in each other’s currency as a hedge against currency risk.
Normally, when a company needs access to money in another currency it trades for it on the currency market. But because the value of some currencies can fluctuate widely, a company can unexpectedly wind up paying far more for a given currency than it had expected to pay.
One example would be an American company wishing to open a European office and a European company wishing to open an American office. The American company may lend the European company $1 million for initial leasing and other costs. This loan is calculated in U.S. dollars. Simultaneously, the European company lends the American company the equivalent of $1 million in euros at the current exchange rate to help with its leasing and other costs. Because both loans are made in the local currencies, there is no currency risk (the risk that the exchange rates between two currencies will swing widely) when the loans are paid back.
Another example would be a Canadian company financing through a German bank. The company is concerned about the value of the Canadian dollar changing relative to the euro. Therefore, the company and the bank create a back-to-back loan, whereby the company deposits CA$1 million with the bank, and the bank (using the deposit as security) lends the company CA$1 million worth of euros based on the current exchange rate.
Back-to-Back Loan Risks
Most back-to-back loans come due within 10 years because of their inherent risks. The greatest risk in such agreements is asymmetrical liability, unless it is specifically covered in the back-to-back loan agreement. This liability arises when one party defaults on the loan leaving the other party still responsible for repayment.
What is a Positive carry trading
This strategy involves borrowing a currency with a low interest rate and buying a currency with a high interest rate. Often, this strategy is used on the AUD/JPY currency pair – in which a trader will borrow Japanese yen at low interest and buy Australia dollars at high interest.
what is CPI
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.
what is the esm
The European Stability Mechanism is a European Union agency that provides financial assistance, in the form of loans, to eurozone countries or as new capital to banks in difficulty. It is a permanent agency, based in Luxembourg, and has replaced the temporary European Financial Stability Facility (EFSF)
