Ch005 Market for Foreign Exchange

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1、Eun&Resnick4eCHAPTER5TheMarketforForeignExchangeFunctionandStructureoftheFXMarketInternationalFinanceinPractice:TheMouseTakesOvertheFloorFXMarketParticipantsCorrespondentBankingRelationshipsInternationalFinanceinPractice:WhereMoneyTalksVeryLoudlyTheSpotMarketSpotRa

2、teQuotationsTheBid-AskSpreadSpotFXTradingCross-ExchangeRateQuotationsAlternativeExpressionsfortheCross-ExchangeRateTheCross-RateTradingDeskTriangularArbitrageSpotForeignExchangeMarketMicrostructureTheForwardMarketForwardRateQuotationsLongandShortForwardPositionsFor

3、wardCross-ExchangeRatesSwapTransactionsForwardPremiumSummaryMINICASE:ShrewsburyHerbalProducts,Ltd.FunctionandStructureoftheFXMarket1Theworld’slargestforeignexchangetradingcenteris:a)NewYorkb)Tokyoc)Londond)HongKongAnswer:c)2Onaverage,worldwidedailytradingofforeigne

4、xchangeisa)impossibletoestimateb)$15billionc)$504billiond)$1.88trillionAnswer:d)3Theforeignexchangemarketclosesa)Neverb)4:00p.m.EST(NewYorktime)c)4:00p.m.GMT(Londontime)d)4:00p.m.(Tokyotime)Answer:a)FXMarketParticipants61Eun/Resnick4e1Mostforeignexchangetransaction

5、sarefor:a)Interventionbycentralbanksb)Interbanktradesbetweeninternationalbanksornonbankdealersc)retailtraded)purchaseofhardcurrenciesAnswer:b)2Thedifferencebetweenabrokerandadealerisa)Dealersselldrugs,brokerssellhouses.b)Brokersbringtogetherbuyersandsellers,butcarr

6、ynoinventory.Dealersstandreadytobuyandsellfromtheirinventory.c)Brokerstransactinstocksandbonds;currencyisboughtandsoldthroughdealers.d)NoneoftheaboveAnswerb)Rationale:ifsomeonecomplainsabouta)beingcorrect,askthemwhowouldsellacrackhouseoramethlab.3MostInterbanktrade

7、sarea)Speculativeorarbitragetransactionsb)Simpleorderprocessingfortheretailclientc)Overnightloansfromonebanktoanotherd)BrokeredbydealersAnswera)4Atthewholesalelevela)MosttradingtakesplaceOTCbetweenindividualsontheflooroftheexchangeb)Mosttradingtakesplaceoverthephon

8、ec)MosttradingflowsoverReutersandEBSplatformsd)Mosttradingflowsthroughspecialized“broking”firmsAnswer:c)5Interventionintheforeignexchangemarketis