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Chapter 6 Foreign Exchange Market (got 96%)

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Louisiana State University
ECON 2035

Chapter 6 Foreign Exchange Market 61 Currency markets and Exchange Rates Foreign exchange marketLARGEST market in the world oAvg over 1 trillion dollars is traded Currency is trade on 2 markets the interbank market and the retail market Interbank market is where the dealers trade currency with each other oMost done by large financial institutions commercial banks and investment banks oMinimum trade is usually 1 million oTrades are done via trading bank accounts denominated in the currencies involved oThe exchange rates in newspapers usually are the rates on the interbank market oRetail market is where everybody else trades oTraders who do not trade in interbank market use a broker to make deals usually broker trades in interbank market oExchange rates on the retail market are the rates on the interbank market plus a fee charged by the brokerExchange rates themselves are measured by comparing 2 currencies Is the price of one currency in terms of another oHow many units of a currency can one unit of another currency buy June 29 2008 dollar per euro exchange rate was 1575means that on the interbank market 1 was trading for 1575 express the euro per dollar exchange rateexchange rate is 0635 thus 1 can buy 0635 To go fromperexchange rate to theperexchange rate is to take the reciprocal of theperexchange rate That is 115750635 Basic exchange rate terminology is used when the exchange rate changes oWhen the value of currency increases it is
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