COMMERCE 4SA3 Chapter 8: Chapter 8.docx

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Chapter 8: foreign exchange & intl financial markets. Foreign exchange: a commodity that consist of currencies issued by countries other than one"s own this is set by demand & supply in the marketplace. Direct exchange rate: the price of the foreign currency in terms of the home currency ($. 009/1yen) Indirect exchange rate: the price of the home currency in terms of the foreign currency (108yen/) The largest foreign-exchange market is in london, then ny, tokyo & Transaction currency: what the us$ is known as in the foreign-exchange market. Hard/convertible currencies: currencies that are freely tradable = euro, British pond, cndn$, us$, yen, swiss franc & swedish krona. Soft/inconvertible currencies: not freely tradable b/c of domestic laws of the unwillingness of foreigners to hold them (many developing countries) Spot market: consists of f-ex transactions that are completed immediately = Forward market: f-ex transactions that are to occur sometime in the future.

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