ECON216 Lecture Notes - Lecture 9: Shortage, Currency Swap, Forward Rate
Document Summary
Where individuals, firms and banks buy and sell fore cur or fore ex. 1/ transfer purchasing power from 1 nation and currency to another. Demand arises when tourists visit another country: domestic firm wants to import from another nation. Fore tourist expenditures: export earnings, receive fore investments. Credit is needed when goods are in transit, and to allow the buyer time to resell the goods to make the payment. 3/ provide the facilities for hedging and speculation. n. About 90% of foreign exchange trading reflects purely financial transactions, and only about 10% tr ade financing. Participants n those needing currency to fund transactions tourists, importers, exporters, investors, etc. n commercial banks. Serve as the clearinghouses for currency exchange n foreign exchange brokers. Clearinghouse for surpluses and shortages between the commercial banks ncentral banks. Buyer or seller of last resort in the foreign exchange market.
