Acknowledgements
Introduction
1
What is Foreign Exchange?
n
The
Need for Foreign Exchange
n
Foreign
Exchange Fundamentals
n
What
is the Importance of Foreign Exchange to a Country?
n
How
is Foreign Exchange Obtained?
n
Balance
of Payments and Its Role in the Generation of
n
Players
in the Foreign Exchange Market
n
Who
Can Deal in Foreign Exchange?
n
Summary
2
Exchange Rate
n
Gold
Standard
n
Purchasing
Power Parity
n
Bretton
Woods
n
The
World Bank
n
The
International Monetary Fund (IMF)
n
The
Smithsonian Agreement
n
Floating
Rate System
n
The
European Monetary Unit and the European Monetary System
n
Asian
Clearing
n
The
Group of Seven
n
n
The
Euro
n
Summary
3
Foreign Exchange Market
n
Principal
Players
n
Secondary
Price Makers
n
Price
Takers
n
Advisory
Services
n
Exchange
Brokers
n
Speculators
n
Central
Banks
n
Summary
4
What Moves Foreign Exchange Rates?
n
The
Strength of the Economy
n
Political
and Psychological Factors
n
Economic
Expectations
n
Inflation
Rates
n
Capital
Movements
n
Speculation
n
Balance
of Payments
n
Government
Monetary and Fiscal Policy
n
Exchange
Rate Policy and Intervention
n
Interest
Rates
n
Tariffs
and Quotas
n
Exchange
Control
n
Summary
5
How Foreign Exchange Rates Are Quoted
n
Direct
Rates
n
Indirect
Rates
n
Reciprocal
Quotations
n
Points
and Pips
n
Two
Way Quotations
n
Cross
Rate
n
Chain
Rule
n
Ready
or Cash Rate
n
Tomorrow
or Tom
n
Spot
Rate
n
Forward
Rate
n
Summary
6
Forward Rates
n
Arbitrage
n
Calculation
of Forward Differential (Swap Rate)
n
Premium
/ Discount
n
How
Forward Rates are Quoted
n
Forward
Cross Rates
n
Forward
Rate Quotations
n
Outright
Forward Rates
n
Spot
and Forward Rates — Value Date
n
Summary
7
Foreign Exchange Accounts
n
Nostro
Account
n
Vostro
Account
n
LORO
Account
n
Mirror
Account
n
Summary
8
Transactions: Receipts and Payments
n
SWIFT
Transfers
n
Telegraphic
Transfer (TT)
n
Mail
Transfer (MT)
n
Demand
Draft (DD)
n
Cover
Rate
n
TT
Rate
n
Base
Rate
n
Summary
9
Foreign Exchange Risks
n
Transaction
Risk
n
Translation
Risk
n
Economic
Risk
n
Position
Risk
n
Settlement
or Credit Risks
n
Mismatch
or Liquidity Risk
n
Operational
Risks
n
Sovereign
Risk
n
Cross
Country Risk
n
Legal
Risk
n
Value
at Risk (VaR)
n
Summary
10
Forward Exchange Contracts
n
Salient
Features of a Forward Contract
n
Exchange
Control Aspects
n
Credit
Risk / Exposure
n
Booking
of a contract
n
Rate
Fixation under Forward Exchange Contracts
n
Roll
Over Forward Contracts
n
Cancellation
of Forward Contracts
n
Summary
11
Long Term Forward Contracts
n
How
an LTFC Works?
n
Advantage
to Client
n
Advantage
to Bank
n
Summary
12
The Dealer and the Positions Maintained
n
The
Dealer
n
Exchange
Position
n
Cash
Position
n
Accounts
Position
n
Maintaining
Position
n
Gross
or Aggregate Position
n
Net
Position
n
Summary
13
Dealing Strategies
n
Idle
Funds
n
Interest
n
Time
Factor
n
Cover
Forward Positions
n
Arbitrage
n
Swap
n
Foreign
Currency Notes and Coins
n
Hedging
n
Dealing
When There is a Possible Devaluation / Revaluation
n
Leads
and Lags
n
Summary
14
Revaluation
n
The
Revaluation Process
n
Revaluation
of Nostro Accounts
n
Foreign
Currency Assets and Liabilities
n
Revaluation
of Forward Contracts and Usance Bills
n
Accounting
for Revaluation
n
Summary
15
Foreign Exchange Products
n
Debt
to Equity Swaps
n
Forward
Rate Agreements (FRA)
n
Caps
and Collars (Bands)
n
Summary
16
Futures and Options
n
Futures
n
Options
n
Summary
17
Foreign Exchange and Interest Rate Swaps
n
Swap
n
Borrowing
in foreign currencies
n
Interest
Rate Swaps
n
Arbitrage
Opportunities
n
Currency
Swaps
n
Cross
Currency Interest Rate Swap
n
Summary
18
Forecasting Foreign Exchange Rates
n
Fundamental
Analysis
n
Technical
Analysis
n
Summary
Conclusion
Glossary of Foreign Exchange Terms
Index