5014 - Finance of International Trade - Seminar Two FOREX Quiz Flashcards
What is a Fixed Exchange Rate Regime?
A regime applied by a government or central bank that ties the country’s official exchange rate to another country’s currency or, the price of gold. Done to keep value within a narrow band
What is a Pure Floating Exchange Rate Regime?
Set by the market without intervention, based on supply, demand and speculation
What is a Pegged Exchange Rate Regime?
Currency regime in which the country’s currency is tied to another currency, usually the USD or EUR
What is a Dirty Floating Exchange Rate Regime?
Country’s central bank occasionally interferes to change the direction of the currency
What was the Bretton Woods Agreement?
The Bretton Woods Agreement established a system through which a fixed currency exchange rate could be created using gold as the universal standard. The agreement involved representatives from 44 nations and brought about the creation of the International Monetary Fund (IMF) and the World Bank.
What was ERM
The European Exchange rate mechanism
When did the UK leave the ERM?
16th September 1992, leading to what is referred to as black Wednesday after the UK government was forced to leave for failing to keep the pound above the lower currency exchange limit, which was mandated by the ERM
Examples of countries with a fixed exchange rate regime
Fiji
Kuwait
Morocco
Libya
They do this to keep the value of the currency within a specific band to avoid volatility and provide greater certainty during trade
What is a Spot Transaction?
Trading one currency for another based on the current price level in the market. ‘‘On the spot’’
What is a Forward Transaction?
Rate of exchange agreed on one date to be executed at another, specified date. Sort of like a formalised futures contract
What is an Options Transaction?
A contract that gives you the ability, but not the obligation to buy or sell a certain currency at a specified exchange rate on or before a specified date
What is a Futures Transaction?
A legal agreement to buy or sell a particular commodity asset, or security at a predetermined price at a specified time in the future
What is a swap transaction?
Also known as an FX swap, it is an agreement by two foreign parties who both need the others currency so they exchange the equivalent of each currency
Figures for the most traded currencies as of April 2019
US $ = 88.3% Euro = 32.3% Yen = 16.8% Pound = 12.8% Australian $ = 6.8% Canadian $ = 5% Swiss Franc = 5%
Top Currency Traders as of June 2020
JP Morgan - 10.78% UBS - 8.13% XTX - 7.58% Deutsche Bank - 7.38% Citi - 5.50% HSBC - 5.33%
