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Write Upon forEx

Write Upon forEx



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Published by manojpatel51
this are the international finance notes for bms sem 6, mumbai university.
this are the international finance notes for bms sem 6, mumbai university.

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Published by: manojpatel51 on Mar 14, 2009
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The Foreign ExchangeMarket
Value Date:
The settlement of a transaction takes place by transfers of deposits betweentwo parties. The day on which these transfers are effected is called theSettlement Date or the Value Date.
2.Spot Rate:
When the exchange of currencies takes place on the second working dayafter the date of the deal, it is called spot rate.
Forward Transactions :
If the exchange of currencies takes place after a certain period from the dateof the deal (more than 2 working days), it is called a forward rate. A trader may quote a forward transaction for any future date. It is a binding contract between a customer and dealer for the purchase or sale of a specific quantityof a stated foreign currency at the rate of exchange fixed at the time of making the contract.
Swap Transaction:
A swap transaction in the foreign exchange market is combination of a spotand a forward in the opposite direction. Thus a bank will buy DEM spotagainst USD and simultaneously enter into a forward transaction with thesame counter party to sell DEM against USD against the mark coupled witha 60- day forward sale of USD against the mark. As the term ‘swap’ implies,it is a temporary exchange of one currency for another with an obligation toreverse it at a specific future date.
Bid Rate:
The bid rate denotes the number of units of a currency a bank is willing to pay when it buys another currency.
Offer Rate :
The offer rate denotes the number of units of a currency a bank will want to be paid when it sells a currency.
Bid - Offer Rate:
The bid offer Rate is the rate which states both, the price which is the bank iswilling to pay to buy other currencies and the price the bank expects when itsells the same currency. Bid and Ask will always be from a bank’s point of view. Thus (A/B)bid will denote the number of units of A the bank will paywhen it buys one unit of B and (A/B)ask will mean the number of units of Athe bank will want to be paid in order to sell one unit of B.
European Quote:
The quotes are given as number of units of a currency per USD. ThusDEM1.5675/USD is a European quote.
9.American Quotes:
American quotes are given as number of dollars per unit of a currency. ThusUSD0.4575/DEM is an American quote.
10.Direct Quotes
:In a country, direct quotes are those that give unit of the currency of thatcountry per unit of a foreign currency. Thus INR 35.00/USD is a direct quotein India.
11.Indirect Quote:
Indirect or Reciprocal Quotes are stated as number of units of a foreigncurrency per unit of the home currency. Thus USD 3.9560/INR 100 is anindirect quote in India.
Arbitrage may be defined a san operation that consists in deriving a profitwithout risk from a differential existing between different quoted rates. Itmay result from 2 currencies, also known as, geographical arbitrage or from3 currencies, also known as, triangular currencies.

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