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International Financial Management

International Financial Management. Chapter x The Foreign Exchange Market Dr. Chisheng Hsu Tunghai University. Currency Quotations. From the trader’s perspective : 直接報價 direct quotes vs. 間接報價 indirect quotes From internationally accepted standards :

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International Financial Management

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  1. International Financial Management Chapter x The Foreign Exchange Market Dr. Chisheng Hsu Tunghai University

  2. Currency Quotations • From the trader’s perspective: • 直接報價 direct quotesvs. 間接報價 indirect quotes • From internationally accepted standards: • 美式報價American quotes vs.歐式報價European quotes • In the over-the-counter trading, currencies are quoted based on internationally accepted standards.

  3. From the Trader’s Perspective • 直接報價 direct quotation • A home currency of a unit of foreign currency. • the price of a foreign currency in terms of a country’s domestic currency • If USD is the home currency(from the trader’s perspective) • EUR1 = USD1.34 ; EUR/USD = 1.34 ; USD1.34/EUR • Read as “one euro equals 1.34 dollars” • “euro (to) U.S. dollar is 1.34” • “1.34 dollars per euro”.

  4. From the Trader’s Perspective • 間接報價 indirect quotation： • A foreign currency price of a unit of home currency. • the price of the domestic currency in terms of the foreign currency • USD1 = CHF0.9083 ; USD/CHF = 0.9083; CHF0.9083/USD • Note: (1) USD is the home currency. (2) CHF = SFr • Read CHF0.9083/USDas “0.9083 Swiss francs per dollar”.

  5. Quotations – Internationally Accept Standards • 美式報價 American terms： • the amount of U.S. dollars per unit of foreign currency (可想成收到USD) • A direct quote in the U.S. (以美國人角度來看，直接報價 ) • Ex: 1¥ = $0.0125 ,¥/$ = 0.0125 , or $0.0125/¥ • 歐式報價 European terms： • the amount of foreign currency for one U.S. dollar (可想成收到FC) • An indirect quote in the U.S. (以美國人角度來看，間接報價 )。 • Ex: 1$ = ¥80, $/¥ = 80, or ¥80/$ .

  6. American and European Quotes • There are four currency pairs quoted in American terms: • EUR/USD (read as Euro U.S. dollar) • GBP/USD (read as British pound U.S. dollar) • AUD/USD (read as Australian dollar U.S. dollar) • NZD/USD (read as New Zealand dollar U.S. dollar) • The rest of currency pairs are quoted in European terms: • USD/JPY (read as dollar Japanese yen) • USD/CHF (read as dollar Swiss franc) • USD/MXN (read as dollar Mexican peso)

  7. Bid-Ask Spread • American terms: • EUR/USD 1.3203 – 1.3207 (read as Euro U.S. dollar at 1.3203 to 1.3207) • The dealer will buy one euro for 1.3203 U.S. dollars. • The dealer will sell one euro for 1.3207 U.S. dollars. • European terms: • USD/CHF 0.9129 – 0.9136 (read as U.S. dollar Swiss franc at 0.9129 to 0.9136) • The dealer will buy one U.S. dollar for 0.9129 Swiss francs. • The dealer will sell one U.S. dollar for 0.9136 Swiss francs. (2012/03/02)

  8. Wall Street Journal Currency Overview

  9. Base currency and Quote Currency • EUR/USD =1.34, USD/JPY =82 • The first currency in the pair is always the base currency. • EUR in the first pair, and USD in the second pair. • The second currency in the pair is the quote currency. • USD in the first pair, and JPY in the second pair.

  10. Forward Rates • http://rate.bot.com.tw/Pages/Static/UIP003.zh-TW.htm

  11. Bid-Ask Spread • 2009.9.24: NT32.34 – 32.44/$  $/NT = ? • $(1/32.44) – (1/32.34)/NT = $0.0308 – 0.0309/NT • Percentage spread = 100 * (ask – bid) / ask

  12. x 100 x 100 Beginning Rate Ending Rate 0 Calculate Exchange Rate Changes • Measuring a change in the spot rate for quotations expressed in home currency terms (direct quotations): %∆ = Ending rate – Beginning Rate • Quotations expressed in foreign currency terms (indirect quotations): %∆ = Beginning Rate – Ending Rate

  13. Forward Contract Outright：直接告知遠期匯率。 Points quotation： ◎ bid＜ask 1.20-1.25 bid ask 即期匯率： NT34.32/＄ NT34.44/＄ points (+)：1.20 1.25 遠期匯率： NT35.52/＄ NT35.69/＄ 1.20-1.10 bid ask 即期匯率：NT34.32/＄ NT34.44/＄ Points (-)： 1.20 1.10 遠期匯率：NT33.12/＄ NT33.34/＄

  14. Forward premium/discount 2009/2/17 spot rate NT34.38/$, 30-day forward rate NT35.08/$ The forward USD is selling at a ?% per annum premium/discount over the TWD? Recall: 把要計算的幣別當做外幣 f =((forward-spot)/spot)*360/n =((35.08-34.38)/34.38)*360/30=24.43％ The forward TWD is selling at a ?% per annum premium/discount over the USD? f = ((spot-forward)/forward)*360/n =((34.38-35.08)/35.08)*360/30 =-23.95％

  15. Cross Rates • NT34.70-34.72/$，$1.4527-1.4529/£，求NT/£=？ • NT/£= 34.70*1.4527 - 34.72*1.4529 = NT50.41 - 50.44/£ • ￥94.65-94.68/$，NT34.70-34.72/$，求￥/NT=？ • ￥/NT = 94.65/34.72 - 94.68/34.70 = ￥2.726 - 2.729/NT

  16. Intermarket Arbitrage • 套利：沒有原始淨投資，無風險，有獲利。 • 一旦有套利機會，投資者竭盡所能去套利。 • 套利是短暫的投資行為。 Ex：手中握有100萬美金，銀行匯率(a) $1.2223/€ (b) $1.8410/£ (c) €1.5100/£。 • 三個匯率合成兩個，保留手中幣別，買低賣高 • (b)/(c) = ($1.8410/£ )/(€1.5100/£) = $1.2192/€ versus (a) $1.2223/€， • (b)/(c) 拿美金買歐元（但無此直接市場），(a) 賣歐元換美金。 • 1. (b) $1000,000/ ($1.8410/£) = £543,183 • 2. (c) £543,183* €1.5100/£ = €820,206.4 • 3. (a) €820,206.4*$1.2223/€ = $1,002,538  Profit = 2,538

  17. Triangular Arbitrage • 假設握有＄1,000,000，銀行匯率(a) $1.2700-1.2710/€, (b) NT34.71-34.72/$,(c) NT44.11- 44.12/€。 • (c)/(b) = 44.11/34.72 - 44.12/34.71= $1.2704-1.2711/€ versus(a) • bidA＞askB 才有套利機會，但1.2700＜1.2711且1.2704＜1.2711，無法套利。 • 若(a)銀行匯率為＄1.2720-1.2730/€，則1.2720＞1.2711 =>有套利機會 • 拿美金買歐元，賣歐元換美金，但無此市場。 • ＄1,000,000買台幣=>NT 1,000,000*34.71， • 將台幣換成歐元=>€ 1,000,000*34.71/44.12， • 再將歐元換成美金=>＄1,000,000*34.71*1.272/44.12 =1,000,705

  18. LIBOR • London Interbank Offered Rate • Video - Personal Finance Minute: All About Libor - WSJ.com

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