tailieunhanh - Lecture Financial markets and institutions - Chapter 16: Foreign exchange derivative markets

In this chapter you will learn: Background on foreign exchange markets, factors affecting exchange rates, movements in exchange rates, forecasting exchange rates, forecasting exchange rate volatility, speculation in foreign exchange markets, foreign exchange derivatives, international arbitrage, explaining price movements of foreign exchange derivatives. | Chapter 16 Foreign Exchange Derivative Markets Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Background on foreign exchange markets Factors affecting exchange rates Movements in exchange rates Forecasting exchange rates Forecasting exchange rate volatility Speculation in foreign exchange markets Foreign exchange derivatives International arbitrage Explaining price movements of foreign exchange derivatives Background on Foreign Exchange Markets Foreign exchange markets consist of a global telecommunications network among large commercial banks that serve as financial intermediaries Banks are located in New York, Tokyo, Hong King, Singapore, Frankfurt, Zurich, and London The bid price is always lower than the ask price Institutional use of foreign exchange markets The degree of international investment by financial institutions is influenced by potential return, risk, and government regulations Institutions are increasing their use of the foreign exchange markets because of reduced information and transaction costs Background on Foreign Exchange Markets (cont’d) Financial Institution Participation in Foreign Exchange Market Commercial banks Serve as financial intermediaries in the foreign exchange market by buying or selling currencies Speculate on foreign currency movements by taking long positions in some currencies and short positions in others Provide forward contracts to customers Offer currency options to customers, which can be tailored to a customer’s specific needs International mutual funds Use foreign exchange markets to exchange currencies when reconstructing their portfolios Use foreign exchange derivatives to hedge a portion of their exposure Brokerage firms and investment banking firms Engage in foreign security transactions for their customers or for their own accounts Background on Foreign Exchange Markets (cont’d) Financial . | Chapter 16 Foreign Exchange Derivative Markets Financial Markets and Institutions, 7e, Jeff Madura Copyright ©2006 by South-Western, a division of Thomson Learning. All rights reserved. Chapter Outline Background on foreign exchange markets Factors affecting exchange rates Movements in exchange rates Forecasting exchange rates Forecasting exchange rate volatility Speculation in foreign exchange markets Foreign exchange derivatives International arbitrage Explaining price movements of foreign exchange derivatives Background on Foreign Exchange Markets Foreign exchange markets consist of a global telecommunications network among large commercial banks that serve as financial intermediaries Banks are located in New York, Tokyo, Hong King, Singapore, Frankfurt, Zurich, and London The bid price is always lower than the ask price Institutional use of foreign exchange markets The degree of international investment by financial institutions is influenced by potential return, risk, and .