chapter 8 Flashcards
define bid price
This is the price that someone is willing to pay to buy something. In foreign exchange, it’s the price a buyer is willing to pay for a currency
define ask price
This is the price that someone is willing to sell something for. In foreign exchange, it’s the price a seller is asking for a currency
what is the difference between the bid and ask price known as
spread
what is an exchange rate?
the value of one country’s currency expressed in terms of another country’s currency
what is a spot transaction?
the immediate exchange of currency at the current market rate within a short period, typically within two business days.
what is the rate at which a spot transaction is settled called?
spot rate
what is an outright forward transaction?
making a deal to swap one currency for another at a decided price, but the actual swapping happens later.The transaction will be settled at the forward rate, no matter what the actual spot rate is at the time of settlement
what is the rate at which the outright forward transaction is settled?
forward rate
what is FX swap
One currency is traded for another on one date and then swapped back later. Most often, the first FX swap is a spot transaction and the second is a forward transaction
what is a currency swap?
a long-term deal between two parties to exchange money in different currencies to benefit from better interest rates
what are “options”
the right, but not the obligation, to trade foreign currency in the future.
what is futures contracts?
an agreement between two parties to buy or sell a particular currency at a particular price on a particular future date, as specified in a standardized contract
what is foreign exchange?
When people exchange their currency for another country’s currency , it happens in the foreign exchange market
who are reporting dealers?
people who work in banks and help people swap their money from one curency to another. They are important because they help decide how much one currency is worth compared to another.
examples of non-financial customers
- government
- small or medium-sized businesses
