TIẾNG ANH KINH TẾ ESP foreign exchange trading

Unit Foreign Exchange Trading Foreign Exchange Market Foreign exchange market: Market in which currencies are bought and sold and in which currency prices are determined The Gold standard  Advantages of using gold as a medium of exchange: +Its limited supply made it a highly demanded commodity +Gold is highly resistant to corrosion, so it can be traded and stored for hundreds of years +It can be melted into either small coins or large bars, so gold is a good medium of exchange for both small and large purchases The Gold standard  Disadvantages of using as a medium of exchange: +Its weight made transporting it expensive +When a transport ship sank at sea, the gold sank to the ocean floor and was lost Gold standard: International monetary system in which nations linked the value of their paper currencies to specific values of gold Gold standard  A monetary system used in the nineteenth and early twentieth centuries whereby the value of currencies could, on request of the owner (holder), be converted in to gold at a country’s central bank As all currencies had a gold value, they also had a certain value in relation to each other This was the beginning of a foreign exchange system The Gold standard Advantages of the gold standard:  Reduce exchange rate risk  Impose strict monetary policies  Correct trade imbalances Bretton Woods system  The Bretton Woods system of moneytary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states Bretton Woods Agreement  Bretton Woods Agreement: Agreement (1944) among nations to create a new international monetary system based on the value of the U.S dollar  Its features: Fixed exchange rates, built-in flexibility, funds for economic development, and an enforcement mechanism Bretton Woods Agreement  World Bank (International Bank for Reconstruction and Development, or IBRD): Agency to provide funding for national economic development efforts International Monetary Funds (IMF):  International Monetary Funds (IMF): Agency to regulate fixed exchange rates and enforce the rules of the international monetary system  Purposes: +Promote international monetary cooperation +Facilitate expansion and balanced growth of international trade +Promote exchange stability, maintain orderly exchange arrangements and avoiding competitive exchange devaluation +Make the resources of the Fund temporarily available to members +Shorten the duration and lessen the degree of disequilibrium in the international balance of payments of member nations Floating exchange rate  A system in which currencies have no specific par value; value is normally determined by supply and demand Central bank are not required to intervene, but they often to avoid wild fluctuations 10 Factors determine exchange rates  The law of one price stipulates that when price is expressed in a common denominator currency, an identical product must have an identical price in all countries and must be entirely produced within each particular country  The purchasing power parity (PPP)concept helps determine the relative ability of two countries’ currencies to buy the same “basket” of goods in those two countries 11 Inflation and Interest rates  Inflation erodes purchasing power  Interest rates affect inflation because they affect the cost of borrowing money  Exchange rates adjust to reflect changes in interest rates 12 Spot transaction  Currency bought or sold today with delivery two business days later 13 Forward transaction  To buy or sell a currency in the future, with payment and delivery at that future date 14 Hedging  To offset a “buy” contract with a “sell” contract and vice versa, matching the amounts and the time span exactly 15 Speculation  When dealers not offset a “buy” contract with a “sell” contract This means that their position is left open 16 Arbitrage  The transfer of funds from one currency to another to benefit from currency differentials or disparities in interest rates In arbitraging, at least two market are enter 17 Premium  The additional amount it will cost to buy or sell a currency at a given future date (relative to the spot or today’s price) 18 Discount  The lesser amount it will cost to buy or sell a currency at a given future date (relative to the spot or today’s price) International monetary system  International monetary system: Collection of agreements and institutions governing exchange rates The Gold standard Fixed exchange rate system: System in which the exchange rate for converting one currency into another is fixed by international agreement Exchange rates  Exchange rate: Rate at which one currency is exchanged for another  Rates depend on +The size of the transaction +The trader conducting it +General economic conditions +Government mandate Exchange rates  Exchange rates influence: +Production and marketing decisions of companies +Financial decisions of companies Forecast exchange rates Forward exchange rate: By the rate agree upon for foreign exchange payment at a future date +Efficient market view: View that prices of financial instruments reflect all publicly available information at any given time +Inefficient market view: View that prices of financial instruments not reflect all publicly available information  Forecasting techniques: +Technical analysis: A technique using charts of past trends in currency prices and other factors to forecast exchange rates +Fundamental analysis: Technique using statistical models based on fundamental economic indicators to forecast exchange rates ... and the country's exchange rate – and ensuring that this rate takes effect via a variety of policy mechanisms  Exchange rates The exchange rates (also known as the foreignexchange rate, forex... current exchange rate  The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date 8 Fixed exchange rate  A fixed exchange. .. USD The foreign exchange market is one of the largest markets in the world By some estimates, about 3.2 trillion USD worth of currency changes hands every day  Exchange rates  The spot exchange