Beruflich Dokumente
Kultur Dokumente
Chapter 11
Types of Transactions
Interbank Trading
o most U.S. transactions conducted by a few
large banks
o retail transactions bank to customers; less
than $1MM
o wholesale
transactions
bank to bank
or bank to
corporate
customers;
more than
$1MM
Exchange-Rate
o demand for foreign currency corresponds to
Determination
balance of payments debits [U.S. imports; U.S.
foreign investment; foreign transfer payments]
o supply of foreign
currency equal to
balance of payment
credits [U.S.
exports; foreign
investment in U.S.;
transfer payments
to U.S.]
o better indication
of purchasing
power of dollar
o increase in real
exchange rate
will make it
more difficult for
U.S. firms to
compete
Arbitrage
$500,000 profit
Forward Market
SpotRate
SpotRateNo.MonthsForward
Relationship Between
Forward Rate & Spot Rate
Relationship Between
Forward Rate & Spot Rate
lower
U.S. interest rates
(cont.)
o investors buy foreign currency with dollars
driving up spot price
o use foreign currency to purchase foreign
Treasury securities
o investors obtain forward contract allowing
dollars to be bought back with foreign currency
driving down forward price
o result: foreign currency at discount in forward
market
o moving funds
into foreign
currency to take
advantage of
higher rate of
return without
forward contract
o extra return:
UK
U.S.
Percentage
= Interest - Interest Appreciation/Depreciation
Rate
Rate
of Pound