Topic 4: Spot FX (1) Flashcards
Where can FX transactions be conducted?
Can be conducted by large global banks, regional brokers or dealers and even small unregulated boutiques (money exchange).
(Over the counter)
EUR/USD. Which is the reference currency?
EUR
EUR/USD. Which is the base currency?
EUR
EUR/USD. Which is the quote currency?
USD
EUR/USD. Which is the term currency?
USD
What is European Term?
A quote where USD is the reference currency
eg. USD/SGD
What is American Term?
A quote where the USD is the term currency
eg. SGD/USD
If GBP/USD: 1.6158. What does this mean?
1 GBP = 1.6158 USD
What is bid?
What the bank is willing to buy the currency for.
What is Offer?
USD/SGD : 1.26 (10) (20).
What does the (10) & (20) mean?
(10) is the bid
(20) is the asking
How many decimal places are most currency quoted to?
4
How many decimal places is the Japanese Yen quoted to?
2
What is a market maker?
The one who sets the price
What is a market taker?
The one who takes the price being offered
What is Value Spot?
It is when settlement takes place within two business days from date of contract, also called spot trades
What are some factors under fundamental approach?
- Inflation
- Monetary Policies
- Interest Rates
- Economic Growth (GDP)
- Trade balances
What is Purchasing Power parity (PPP)
Based on the law of one price, where the cost of an identical good should be the same around the world after exchange rate adjustments.
What is Interest Rate parity (IRP)
It is also based on the law of one price. It suggests that an investment asset in one country should yield the same as one in another country, after adjusting for exchange rates.
What is Interest rate simply?
Basically, the interest rate is the price of money. This price depends on the demand and supply of funds.
1 pip =
0.0001 (4dp)
