FX Market

Question 1

Man functions

Answer 1

favour exchange of funds among diff. countries
hedging foreign exchange risk 
in/outflows (globalisation)
finance international trade
fix foreign exchange currency price

Question 2

Players

Ex/importers

Answer 2

firms acting globally have

a) pay salary in local currency
b) payments of clients in foreign

Question 3

Players

Investors

Answer 3

1. foreign direct investments
   firms own facilities, holds property or buy firms in oterh countries
2. internat. PF investment - enter foreign exchange Market to obtain foreign currency to make purchase, convert earnings of f. investment

Question 4

Speculators

Answer 4

buy/sell solely to profit from anticipated changes in exchange rate (without engaging in no sorts of business)
biggest S = leading banks or inv. banks (proprietary trading using own money), HFT

Question 5

Governments

Answer 5

national treasuries & central banks may trade for purpose of affecting exchange rates
gov. have created “state-owned inv. funds” (sovereign wealth funds) to invest in foreign currency received

Question 6

Spot Market

Answer 6

immediate delivery
most transaction arranged electronically
online trading has lowered trading costs (more active)

Question 7

FX Spot

Answer 7

agreement to directly exchange two currencies
buy one sell other at agreed price called FX SPOT RATE
settlement on spot date (T+2)

Question 8

EUR/USD

Answer 8

EUR = base currency
USD = quote currency
how much you will receive/pay selling/buying the base C.
value of 1 unit base into quaote

Question 9

1.22 = EUR/USD

Answer 9

you can buy/sell 1 EUR for 1.22 USD

Question 10

FX Forwards/

FX Outrights

Answer 10

agreement (2) to exchange an amount on 1 currency in another in FUTURE DATE (above Spot date)
exchange rate is agreed by both for future date
billateral contract - obligation
FWD rate = spot rate+/- swap points

Question 11

futures

forwards

Answer 11

Obligation to purchase or sell specific currency at maturity
no exchange of money until future date (maturity) reached
lock exchange rate at certain future dates by purchasing/selling future contract
a) future - standardised (CME)
b) fwd - billateral agreement

Question 12

Export Outright

Answer 12

produce - outsource
receive in foreign currency
(contract to sell F and receive D)

Question 13

Import Outright

Answer 13

payment need to made in Foreign

contract to receive F and pay D

Question 14

Non-Delivery Forwards

Answer 14

outright transaction without physical delivery at maturity
cash-settled FX Forward contract
agree - notional, rate, spot level at future day
mostly used for currency which can´t be delivered off-shore

Question 15

FX Swaps

Answer 15

two deals: spot & outright
exchange currencies for period of time (SPOT) agreeing to reverse transaction in future (outright)
only principal exchange
useful tool to manage currency balances

Question 16

FX Currency Swaps

Answer 16

a) exchange principal at start & end of contract

b) pay & receive interest on loans between specific interval

Question 17

FX Options

Answer 17

small portion - most of them OTC
a) buyer has right (not obligation) to buy/sell currency or future contract at agreed FX rate on spec. date
b) seller has obligation to sell/buy currency related to contract details
ALWAYS - call option in one currency and put in the other
gives you the right to buy/sell money instead of other assets

Question 18

FX Futures

Answer 18

contract currency exchange
where future date & price is negotiated in organised markets
most contracts is physical delivery
however inv. normally closed out their position before the delivery date (many spec.)
daily market to market
CME - US - regulated FX market
Eurex - Futures & options FX

Question 19

FX portion

Answer 19

48 % - swaps
36 %  - spots
8% - FX forwards & NDFs
6% - options/other products
2 % - currency swaps

Question 20

World FX Reserves of $

Central Banks

Answer 20

1. China
2. Japan
3. Saudi Arabia/Switzerland

Question 21

World FX Reserves

currency distribution

Answer 21

1. USD - 60%
2. EUR - 24%
3. JPY - 5%
4. GBP - 5%