Foreign Exchange Market An Introduction

Prof. Dr AP Faure
Foreign Exchange Market: An
Introduction
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2

AP Faure
Foreign Exchange Market:
An Introduction
Download free eBooks at bookboon.com
3

Foreign Exchange Market: An Introduction
1
st
edition
© 2013 Quoin Institute (Pty) Limited &
bookboon.com
ISBN 978-87-403-0590-6
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Foreign Exchange Market:
An Introduction
4
Contents
Contents
1 Essence 8
1.1 Learning objectives 8
1.2 e foreign exchange market in a nutshell 8
1.3 Organisational structure of the forex market 11

1.4 Monetary unit 14
1.5 Foreign exchange and bank deposits 14
1.6 International spot rate quotation conventions 17
1.7 Two-way spot prices 19
1.8 Spread 20
1.9 Cross rates 22
1.10 Foreign exchange risk: appreciation and depreciation 27
1.11 Spot and derivative forex markets 30
1.12 Why exchange rates are important 31
1.13 Summary 32
1.14 Bibliography 32
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Foreign Exchange Market:
An Introduction

5
Contents
2 Derivatives: forwards 34
2.1 Learning objectives 34
2.2 Introduction 34
2.3 Derivatives markets 35
2.4 Denition of a forward 37
2.5 Types of forwards 38
2.6 Outright forward foreign exchange contracts: functions and pricing 46
2.7 Forward exchange market 56
2.8 Summary 57
2.9 Bibliography 57
3 Derivatives: futures, options & swaps 59
3.1 Learning objectives 59
3.2 Introduction 60
3.3 Currency futures 61
3.4 Currency options 68
3.5 Currency swaps 71
3.6 Summary 72
3.7 Bibliography 73
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