Lecture 1 - FOREX Basics Flashcards
What is foreign exchange?
Trading one country’s currency for another country’s currency.
Who are the main users of foreign exchange?
Large commercial banks in financial centres, that trade foreign currency denominated deposits with each other.
Actual bank notes like dollar bills rarely…
Physically cross international borders.
Only tourism and illegal activities lead to…
Movement of bank notes across borders.
Transactions can always take place as foreign exchange dealing is a…
24 hour market.
What is the structure of the foreign exchange market?
The FOREX market does not have a specific geographical location. The FOREX market is created by the interaction of traders based in different parts of the world.
What kind of important evolutions has the FOREX market witnessed?
- Originally his market was mainly used by traders in goods and services.
- Now there are algorithmic/ computer automated traders.
- There are no longer physical players.
- Also, the large part of the deals conducted in this market are by financial institutions, banks and hedge funds.
What is the main reference for learning about the foreign exchange market?
The Bank of International Settlements (BIS) triennial review provides important information on the FOREX. Of particular interest are the information on the total daily turnover, the geographical concentration and the currency concentration of this market.
The existence of different exchange rate conventions can create some degrees of confusion as…
Increases/decreases in the exchange rate are not fully informative.
The presence of intermediaries in the FOREX can act as…
Temporary buyers/sellers.
Their profit derives not only from commission fees, but also on…
The gap between their buying and selling price.
What is bid rate?
The rate at which dealers buy the currency.
What is offer rate?
The rate at which they sell the currency.
Popular currencies have a very small…
Spread.
Whereas, other currencies (smaller countries) may have a…
High spread.
