Activity:

1. ALL correct : 8.which of the following countries does not use volume
GBP/USD quote of 1.35-45 quotation in general?
Korea
Calling party is willing to sell USD at 45.
*country use volume quotation:
2. True: New Zealand
o Volume quotation is an indirect quotation. Australia
o In volume quotation, the commodity currency is UK
a local currency
o In price quotation, the term currency is a local
currency 9.correct
EUR/USD bid quote of 1.20?

o EUR is a commodity currency

o USD is a term currency
o A quoting party is willing to buy EUR at 1.20 bid
o The pair is also called Euro Dollar
o 1 Euro is worth 1.2 US dollar

False: 1 US dollar is worth 1.2 Euros

3. express +500 pips if the given quote is USD/PHP is

49.550?

50.05

4.correct:
USD/JPY quote of 0.07-0.08

o A quoting party is willing to buy USD at 7 (bid)

o A quoting party is willing to sell USD at 8 (offer)
o A calling party is willing to sell JPY at 8 (offer)
o A calling party is willing to buy JPY at 7 (bid)

5.when New York closes, which following

country/market will open next?

Sydney

6. correct:

o A quoting party buys term currency at offer

o A quoting party sells term currency at bid
o A calling party sell term currency at offer
o A calling party buys term currency at bid

7. correct:

o A quoting party buys commodity or base currency

at bid
o A quoting party sells commodity or base currency at
offer
o A calling party sell term currency at bid
o A calling party buys commodity or base currency at
offer
Treasury Management
Foreign Exchange
FOREX: A 24-Hour Market

ACI-FMA coordinated global accord on observed

opening and closing times
Open: 5 am Sydney Time Monday
Close: 5 pm New York Time Friday
Trading Hours:
What is Foreign Exchange (FX)?
The FX market is open 24 hours a day, 5 days a week
o Money denominated in the currency of another
with the most important world trading centers being
nation or group of nations
located in London, New York, Tokyo, Zurich, Frankfurt,
o Buying and selling of foreign currency
Hongkong, Singapore, Paris and Sydney.
*FX requires at least 2 currencies (pair)
*open 24 hours, 5 days a week (weekdays only)
* group of nations ex: Eurozone
*reckoning date: when Sydney opens at 5pm on
Monday and close 5pm closing time Friday
*means you can still buy but the settlement date or
time will start at 5am Sydney time Monday (Live
trading)
*5 am at Sydney the whole market will open (you can
trade)
* Philippines: 9 – 5 pm

*when Sydney and Tokyo are about to close, London

will open.
*per country basis it is not, has limited time, no
What is Foreign Exchange (FX)?
weekends.
o The market in which a currency of one country is
exchange for the currency of another country
*palitan
*some use FX for profit (ex: itoro)

o FX trading, forex trading or currency trading refers

to buying and selling currencies in the foreign
exchange market - to make profit or as end-user

It is the most active and largest financial market,

averaging at least $5 trillion daily trading volume
(35X bigger than the world’s stock markets
combined)

* FX is a largest market globally

*not stocks, bonds, derivative, but FX market
*not use only for profit but for daily transaction for
import or export
*35X bigger than the world’s stock markets combined
(1) FX à $5 trillion 3 most tradable currencies in the world
(2) Bond market o US
(3) equities market o Euro
o Japanese Yen
o Sterling Pound

FOREX TRANSACTION
CURRENCY NICKNAMES
o EUR – “the common currency” , “fiber”
o GBP – “cable” , “pound sterling”
o AUD – “aussie” , “ausie battler”
o NZD – “Kiwi” , “flightless bird”
o USD – “greenback”, “buck”
o CAD – “loonie”
o CHF – “swissie”
- Confoederatio Helvetica - Latin for Swiss
Confederation.
Common safe havens - USD, CHF, JPY

USD – largest country in the world

CHF – stable financial system
JPY – debt exposure is internal Market Participants
- if may external shock JPY is risk relient

The Philippine FX Market

The Philippine FX Market

o Floating exchange rate system
o Managed by the BSP à price stability
o Peso vs US Dollar:
Philippine Dealing and Exchange Corp.
Monday to Friday * fx
9am-12nn; 2-4pm
* same Fixed income
*lunch break 12-2

* Philippine FX Market uses Floating exchange rate

system – means the price of the currency will base on
demand and supply. 1. Banks and other Financial institutions
*BSP is intervening but it doesn’t influence the price o The interbank market
insignificantly. o Take on a huge amount of forex transactions each
All contra side if I want buy peso, the BSP will sell dollar day for both their customers and themselves
It is Passive not active. o Examples are UBS, Barclays Capital, Deutsche Bank,
If Active – managed floating and Citigroup
o You could say that the interbank market is THE
*listed in Philippine Dealing and Exchange – similar to foreign exchange market.
bonds. counterpart ng PSE Philippine Stock Exchange
*market participants are interbank
* not simply buy and sell like PSE with platform Interbank consist of the best bid and offer prices
*OTC market –call treasury “ i want to buy pesos in *all bank provideprices
dollars *sino best pinaka mataas na bid and pinaka mababa
* unless, retail trader you are using wanda or etoro. offer.
They have a system, (kung pano ka makakabili) OTC
* 2. Large Commercial Companies
o They take part in the foreign exchange market for
the purpose of doing business.
*import and export
*some use for hedging
If they know that the peso will depreciate
they will immediately import
If not comfortable with derivative
Go directly to FX market
EXAMPLE:
Apple must first exchange its U.S. dollars for the
Market Participants Japanese yen when purchasing electronic parts
Demand Side (Buyer) Supply Side (Seller) from Japan for their products.
Importer
Local investing abroad 3. The Speculators (includes retail traders)
o Individuals who trade forex through online forex
Local going abroad
trading platforms (OANDA, FXCM, Interactive
Brokers)
*chupitero
 *small retail *go to US, magpapalit ka or bibili ka ng dollars
*institutionals *USD not always the commodity
Mrs watanabe ir Japanese housewives who trade
heavily in the yen carry trade o First currency: Commodity Currency (ex: USD)
o Oblique (/): Against not Per
o Second currency: Terms Currency (ex: PHP)
o Amount: Price of Commodity Currency
o Verbal jargon “Dollar Peso” not “Peso Dollar”
4. Governments and Central Banks
Primary function is to provide the nation’s money
supply and consequently maintain price stability *JPY/USD
They may have: JPY – Commodity Currency
o Official exchange rate target (fix rate or peg) USD – Terms Currency
USD/CNY
o Unofficial exchange rate target (managed float)
EUR/CHF
o No exchange rate target (free float) USD/PHP

*intervening on passive basis in order to manage the

money supply
* CNY china using official exchange rate target, they are
pegging against dollar para maging stable, if the dollar
rise, rise din yuan

currency peg is a policy in which a national government

sets a specific fixed exchange rate for its currency with a What is Implied in an FX Rate?
foreign currency or a basket of currencies. Pegging a
currency stabilizes the exchange rate between countries.
GBP/USD 1.680
Doing so provides long-term predictability of exchange
rates for business planning.
1 GBP can be exchanged for 1.6180 USD
1 GBP is equal
* unofficial exchange rate – manage float, they are
influencing the significant price
If you buy GBP, you pay USD;
-if they want to trade swiss franc into 1 euro – gagawin
if you sell GBP, you receive USD
nila
2 parties:
* PHP in Philippines manage free float money system,
Quoting party – nagbibigay ng price it means you are
based only demand and supply.
the market maker; price maker, bank, treasury dept,
you are working as a salesperson, agent, middleman,
BSP minimizing the volatility, but does not move
stockbroker (fx broker)
significantly the price.
*if someone wants to buy or sell
GIR Gross International Research
you gave them the price
Ex: the US market started to raise policy rate, mag
dedepreciate peso.
Calling party – need the currency, means you want to
What will happen, the BSP has a lot of US Dollar holding
buy or want to sell, price taker.
through GIR. Un gagamitin ni BSP to fund the
Kung ano binigay ni quoting party you just have to
importation.
accept it.
GIR can cover 12 month’s worth of imports
-you take the price

FX Market Conventions
Anatomy of an FX Rate
o FX Rate - A price - the number of units of one
Who are Involved in an FX Transaction?
nation’s currency that must be surrendered in order
Spot USD/PHP please? à Calling party / Price Taker
to acquire one unit of another nation’s currency;
*sya tumawag,
the value of one’s currency in terms of another
Spot USD/PHP 45.29-45.31 à Quoting Party Market
USD/PHP 48.50
Maker
1 USD means, 48.50 Pesos
*say last number if same
*SEC License – FI at an agreed price à 2-way quote
Treasury certificate (ateneo) (Dictum Meum Pactum)

Bid and Offer refer to the COMMODITY CURRENCY at a specific value date à 2 dates
They refer to Dollar (USD)
*it means the caller (calling party) is buying or selling
dollars (Dictum Meum Pactum)
-means my word is my bond
PRICE TAKER has to deal at the price of the MARKET -you cannot reverse a transaction by simple
MAKER “Ayaw ko na pala”
*can negotiate

-if you tend to buy, and nabenta mo you have 3 cost

Binenta mo, binili mo, inorder to close the position,
-bibili ka uli inorder to take original position
*$5 trillion
*43 b pesos is 1b dollars
*every mistake cost you
Value Spot – settlement date is T+2 * you are going to pay if you made an error
Means 2 banking days Every mistake will cost you in future

If want to settle it tom it is called value tom *Foreign exchange and Fixed Income– illiquid
value tom - T+1 Malaki big spread
*bukas na if it is a week day That is why the cost is high
*if fri à value tom will be on Monday

*if no agreement means no transaction

Value tod – means value “zero” T+0 *if there is an agreement there is a confirmation
*without confirmation the trade is not yet done
Spot Euro Dollar Cannot go back after 30 mins
Spot EUR/USD 1.0780 OTC highbred
Means 1 Euro = 1.0780 US Dollars You are calling a bank, some using Reuters as a platform
They are using different platform to buy and sell
Spot Dollar Yen
Spot USD/JPY 112.30
1 US Dollars is = 112.30 Japanese Yen * transaction date settlement date

Ex: IF from 112.30 to 115

Means nag depreciate si JPY
Because it will cost you 2.7 JPY in addition to buy USD
So nag mahal si dollar

FOREIGN EXCHANGE: TYPES BY VALUE DATE

Value Date Description

Spot two business days after
trade date
Forward Any value date beyond
spot
Swap A pair of spot and an
opposite-side forward
transaction

What is the Foreign Exchange Contract? *swap similar to a series

of forward
A Bilateral Agreement à 2 parties *like bond (series of time
deposits)
to Buy or sell à 2 cash flows

one currency against another à 2 currencies

 BID: USD
o The price the quoting party is willing to buy the
commodity currency at bid 415 ,
(quoting party, counterparty, market maker)
Quoting party buys Low, Quoting sells high
o Also called purchase rate or buying rate

o The price the calling party is willing to sell the

commodity currency at bid 415

*BUY LOW, SELL HIGH

INTERMS OF BID AND OFFER
That is why the Quoting party earns from Spread
(.035)

FOREX TRANSACTION
OFFER: USD
Critical Components of an FX Deal o The price the quoting party is willing to sell the
o 1 commodity currency
o 2 o Also called asking rate or selling price
o 3
o 4 o The price the calling party is willing to buy the
o 5 commodity currency
o 6
o 7 Confirmation: (dat buo)
o 8 *confirm bank: i sell against US against pesos at 43.445
o 9 *call : I confirm against US dollar against pesos 43.445
o 10

Explicit and Implied FX Quote

(view Quoting party)

*the market maker buys the USD the commodity
currency at lower price 29 (Bid)
FOREX: COMMODITY VS TERMS *sells USD against JPY at 31 at higher price (offer)

USD/PHP (view Calling party)

COMMODITY CURRENCY: USD
o The currency being priced in an FX txn
o The currency being bought or sold
o Also called base currency or translation currency
*hm is 1 dollar: 43.415-43.445
*in terms of dollar
*price taker can sell USD at lower 29 (bid)
*buy USD at higher 31 (offer)
Spread is 2 pips
Pip is not a basis point (BPS)
BPS is a percentage % in fixed income

TERMS CURRENCY: PHP

o The currency used as reference for pricing in an FX
txn; or to express the price of the commodity
o Also called counter currency or quote currency or
price currency

43.415 43.445
 *you are buying *sell peso at 31
peso 31 *offer
*OFFER

Explicit and Implied FX Quote

Quoting Bank can Calling Bank can
BID Buys commodity Sell commodity
USD/PHP 45.29 currency currency
(Implicitly selling (Implicitly buy the
the terms terms currency)
currency)
OFFER Sell commodity Buys commodity
USD/PHP 45.31 currency currency
(Implicitly buy the (Implicitly selling
terms currency) the terms
currency)

USD/PHP 29-31
*this is the price of USD
*IN TERMS COMMODITY
GREEN – COMMODITY/BASE CURRENCY
ORANGE – TERM CURRENCY
*mental switch

Quoting Bank can Calling Bank can

(bank)
Gives the price
QUOTATION SYSTEM
BID Buys commodity Sell commodity Base Currency Terms Currency
USD/PHP 45.29 currency currency Price Foreign Currency Local Currency
29 29 Quotation
BID (low) LOW (direct
*if you are *this is the price of BID Quotation)
buying USD USD *this is the price Volume Local Currency Foreign Currency
(commodity) of USD Quotation
(indirect)
, you are selling Selling the terms *in general, currencies are traded using Price
peso (terms) currency Buying the terms Quotation except K-A-P-E
29 currency K-kiwi New zealand
BID (low) *buy peso at 29 A- Australia
*you are selling *bid P- Sterling pound
peso
E- Euro
OFFER Sell commodity Buys commodity
Ex: USD/PHP
USD/PHP 45.31 currency currency
*it is the price quotation in the Phil.
31 31 USD
HIGH HIGH price quotation:
OFFER *this is the price USD is the Base currency à foreign currency
*this is the price of of USD PHP is the Term currency à Local currency
*if you are USD *you want to buy * in US (PHP/USD à is the Price Quotation or Direct in
selling USD * you want to sell 31 USD the US)
(commodity) dollars at 31 *USD/PHP indirect quote volume

, you are buying

peso (terms) Buying the terms Selling the terms PHP/USD
currency currency *volume quotation in the Phil.