FIN 3410 Lecture Notes - Lecture 1: Interbank, Direct Market, Arbitrage

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Day 1 Notes
FIN 3410
FX = currency
Chapter 5
Market: congregation of buyers and sellers
5-8:
Interbank 91%
Client 9%
5-11:
Currency supply UP then
Currency price DOWN
- Currency cheaper, then goods are cheaper, so manufacturing and exporting easier
Direct Quote (in USD)
1 yen = $0.01
American Terms
EX: S($/Y) = 0.5242
o 1 yen = $0.5242
Indirect Quote (per USD)
100 yen = $1
European Terms
EX: S(Y/$) = 0.5242
o $1 = 0.5242 yen
Bid-Ask Spread
Bid Price dealer’s buying price
o The price a dealer is willing to pay you for something
Ask Price dealer’s selling price
o The amount a dealer wants you to pay for something
Bid-ask Spread
o The difference between the bid and ask prices
o Bid < ask
EX: 1.4739 1.4744
o Bid Ask
o Dealer will pay $1.4739 for 1X
o Dealer will sell 1X for $1.4744
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