BASICS OF EXCHANGE RATES

INTRODUCTION
 Every country has its own Currency.
 No one is self sufficient.
 Exchange Rate.
 Home currency & Foreign Currency.

 Methods of Quoting Exchange Rate

Direct US$1 = Rs 69.7200

Indirect Rs 100 = US$1.4343
 Point (pip).
 Two way quotations-
Asking Party.
Quoting party.

Vs
 Base Currency.
 Buying & Selling rates.

 Bid Rate & Offer Rate.

‘big figure’
 Bid & Offer Spread.
ISO CURRENCY CODES
 USD = US Dollar
EUR = Euro
JPY = Japanese Yen
GBP = British Pound
CHF = Swiss Franc
CAD = Canadian Dollar
AUD = Australian Dollar
NZD = New Zealand Dollar
CURRENCY PAIR TERMINOLOGY

 EUR/USD = "Euro"
USD/JPY = "Dollar Yen"
GBP/USD = "Cable" or "Sterling"
USD/CHF = "Swissy"
USD/CAD = "Dollar Canada"
AUD/USD = "Aussie Dollar"
NZD/USD = "Kiwi"
Factors affecting Exchange Rates
Factors affecting Exchange Rates

BOP

Strength of the Economy

Fiscal Policy

Interest Rates

Monetary policy

Political factors

Exchange control

Central bank intervention

Speculation:
‘Bandwagon effect’ & ‘riding the mkt’

Expectations of the foreign exchange market

Technical factors