UNIT 14: THE FOREIGN EXCHANGE MARKET Flashcards
How many main ideas are there in unit 14?
there are 4 main ideas:
- 1, Definition of foreign exchange market.
- 2, Features
- 3, Types of transactions
- Participants
what is the foreign exchange market?
the foreign exchange market is the market in which national currencies are exchanged
what are the features of the foreign exchange market?
- NOT AN ORGANIZED MARKET: with fixed hours and physical meeting place.
- IS OTC MARKET:
- primary communication instruments are telephones and computers
- HAS DEVELOPED RAPIDLY:
- in response to the growth in the volume of world trade in goods and services
- in response to the expansion of international capital flows
Why is the foreign exchange market considered to be an OTC market?
Because it is not an organized market with fixed hours and a physical meeting place.
Why has the foreign exchange market developed rapidly/ quickly?
Because it HAS DEVELOPED RAPIDLY:
- in response to the growth in the volume of world trade in goods and services
- in response to the expansion of international capital flows
Why is London the world’s largest foreign exchange market?
- Because of the large volume of international financial business generated here.
- London also benefits from its geographical location which enables it:
+to trade not only with Europe
+but also with other centers, whereas time difference makes it difficult for them to trade with each other.
what are two types of transactions in the foreign exchange market?
They are Spot and forward transactions.
What are Spot transactions?
+SPOT TRANSACTIONS: are undertaken for an actual exchange of currencies 2 BUSINESS DAYS LATER.
What are forward transactions?
FORWARD TRANSACTIONS: involves a delivery date further into the future, as far as a year or more ahead.
How many types of participants are there? Who are they?
(=what are three types of participants in the foreign exchange market?)
there are 3 types of participants. They are:
- CUSTOMERS (such as multinational corporations)
- MARKET MAKERS (some BANKS)
- BROKERS (specialist companies)
For what purposes do multinational corporations need foreign currencies?
for their cross border trade or investment business.
Who are customers in the foreign exchange market? What do they do in the market?
They are multination corporations, import and export firms, and so on.
They require foreign currencies for cross border trade or investment business.
Who are market makers in the foreign exchange market? What do they do in the market?
MARKET MAKERS are some BANKS:
They quote buying and selling rate for currencies
Who are the brokers in the foreign exchange market? how do brokers participate in the market?
+BROKERS are specialist companies with telephone lines to the banks throughout the world,
They act as intermediaries between banks and charge a commission for their services.
What do the terms “bit rate” and “offer rate” mean?
Bit rate is buying rate and offer rate is selling rate.
Summarize unit 14
I will summarize Unit 14. Unit 14 is about the foreign exchange market. In my opinion, there are 4 main ideas:
1. Firstly, it talks about the DEFINITION:
- the foreign exchange market is the market in which national currencies are exchanged
2. Secondly, it talks about the FEATURES of forex:
- NOT AN ORGANIZED MARKET:
- no fixed hours
- no physical meeting place
- IS OTC MARKET:
- primary communication instruments are telephones and computers
- HAS DEVELOPED RAPIDLY:
- in response to the growth in the volume of world trade in goods and services
- in response to the expansion of international capital flows.
3. Thirdly, it talks about TYPES OF TRANSACTIONS: +SPOT TRANSACTIONS: are undertaken for an actual exchange of currencies 2 BUSINESS DAYS LATER
. +FORWARD TRANSACTIONS: involves a delivery date further into the future
4, Finally, it talks about PARTICIPANTS in the market:
- CUSTOMERS (multinational corporations):
require foreign currencies for cross border trade or investment business.
- MARKET MAKERS (BANKS): quote buying and selling rate for currencies
- BROKERS (specialist companies): act as intermediaries between banks and charge a commission for their services.
(Nguồn tham khảo: tài liệu do Giảng viên Phạm Thị Thu cung cấp)
What are the differences between spot transactions and forward transactions?
What is the function of forward transactions?
buy buying or selling in the forward market a bank can protect the value of anticipated flows of foreign currency from exchange rate volatility.
How the dealers/ market makers/ banks earn a profit in forex (foreign exchange market)?
.
They earn a profit on the difference between their buying and selling rates.
How do commercial banks make profits?
They make profits by providing loans and earning interest income from those loans.
