IN A NUTSHELL

1. Basic forex activities are hedging, speculation and foreign investments.

2. Speculation is a foreign exchange trading activity wherein it has high risk but the returns that
you’ve earned is good.
3. Foreign exchange risk is the risk that causes one to incur losses due to the forex rate.
4. If a currency rises an example would be peso then it is called peso appreciation but when it is
getting low then it is peso depreciation.
5. Forward foreign exchange transaction refers to the future exchange rate that is agreed upon a
forward contract.
6. When trading in foreign exchange markets, you are simultaneously buying single currency and
selling the other while in stock market, it’s either you buy or sell the shares in the stocks.
7. Spot foreign exchange transaction is the immediate exchange rate.
8. Interest rate parity theorem focuses on why does forward rate differs from the spot rate and on
the degrees of difference that should exist.
9. Absolute PPP indicates that the prices of the same product in two countries should be the same.
Purchasing Power Parity focuses on how a currency’s spot rate will change over time.
10. Relative PPP implies that the changes in two countries' price levels affect the exchange rate.