The Foreign Exchange Market
American terms
$/unit of currency
Foreign Exchange Market
A network of banks, foreign exchange brokers and dealers whose function is to bring buyers and sellers of foreign exchange together
Bank's profit
ASK-BID
Bid-Ask Spread
ASK-BID
Transaction costs
Bid-Ask Spread
Direct quotation
home price of foreign currency
Interbank Market
includes The spot market and The forward market
Cross Rates
Exchange rates between any two foreign currencies
Interbank Market
One of the two tiers of the FOREX market.An informal arrangement of larger commercial banks and a number of foreign exchange brokers linked together by telephone, telex and a satellite communications network .
Currency Arbitrage
Simultaneously buying and selling mispriced currencies and realizing a riskless profit
The forward market
forward rate is the exchange rate used for currency exchanges to take place xxx days from now
Indirect quotation
foreign currency price of home currency
BID
price at which bank will buy currency.
ASK
price at which bank will sell currency
The spot market
spot rate is the exchange rate for immediate transactions
European terms
unit of currency/$
Arbitrage
used to obtain riskless profit
Hedging
used to protect against the exchange rate risk derivative contract offsets existing cash contract
Speculation
used to speculate on one's belief derivative position independent of any cash position