FIN 701 Lecture Notes - Lecture 18: Foreign Exchange Risk, Foreign Exchange Swap, Foreign Exchange Spot
13 Apr 2016
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Document Summary
Globalization of financial markets has increased foreign exposure of most fis. Fi may have assets or liabilities denominated in foreign currency: direct positions such as scotiabank inverlat in mexico, td in the u. s. Fx largest markets in the world: average global fx market turnover us. 3 trillion/day april 2013, us trillion/day april. 2010; us. 3 trillion/day, april 2007 (bis triennial surveys). Cdn avg. daily turnover: us. 8 billion april 2013 vs. us. 9 billion april 2010 (bank of canada, sept. 2013) Us $/yen and us $/euro: major global fx markets. Canadian fis small players in the international markets; large players in us/canadian transactions. Fis act as market makers, quoting bid-ask spreads on major currencies. Two sources of exposure: off-balance sheet purchase & sales; on-balance sheet financial & non-financial assets & liabilities. Chapter 16: fx transactions represent a significant portion of the off-balance sheet activities of canadian banks. Trading versus asset-liability management (alm or hedging); credit (counterparty) risk.
