Introduction to Foreign Exchange
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Chapter 13 * February 2021
DoD 7000.14-R DoD Financial Management Regulation Volume 5, Chapter 13 * February 2021 VOLUME0B 5, CHAPTER 13: “FOREIGN DISBURSING OPERATIONS” SUMMARY OF MAJOR CHANGES All changes are in blue font. Substantive revisions are identified by an asterisk (*) symbol preceding the section, paragraph, table, or figure that includes the revision. Unless otherwise noted, chapters referenced are contained in this volume. Hyperlinks are in bold, italic, blue, and underlined font. The previous version dated April 2019 is archived. PARAGRAPH EXPLANATION OF CHANGE/REVISION PURPOSE All Updated hyperlinks and formatting to comply with current Revision administrative instructions. 130203 Added guidance to the paragraph titled “Currency Custody Addition Accounts” from the Treasury Daily Reporting Policy Memo (FPM 19-14). 130402.F Added guidance to the subparagraph titled “Gains and Addition Deficiencies by Revaluation” from the Treasury Daily Reporting Policy Memo (FPM 19-14). Figure 13-1 Replaced Figure 13-1, which displayed the sample for Revision Department of Defense (DD) Form 2664, (Currency Exchange Record) with a sample form of the “Certificate of Change in Purchase Rate.” The DD Form 2664 can be found at DD Forms Management (https://www.esd.whs.mil/Directives/forms/). Figure 13-2 Replaced Figures 13-2, which displayed the sample DD Form Revision 2668, (Request for Bid (Purchase/Sale)) with a sample form of the “Certificate of Adjustment Due to Rounding.” The DD Form 2668 can be found at DD Forms Management (https://www.esd.whs.mil/Directives/forms/). Figure 13-3 Removed Figures 13-3, which displayed the sample DD Form Deletion 2668, (Request for Bid (Purchase/Sale) – Sale Purchase) from the chapter. -
On the Effectiveness of Exchange Rate Interventions in Emerging Markets
On the effectiveness of exchange rate interventions in emerging markets Christian Daude, Eduardo Levy Yeyati and Arne Nagengast CID Working Paper No. 288 September 2014 Copyright 2014 Daude, Christian; Levy Yeyati, Eduardo; Nagengast, Arne; and the President and Fellows of Harvard College Working Papers Center for International Development at Harvard University On the effectiveness of exchange rate interventions in emerging markets Christian Daude Organisation for Economic Co-operation and Development Eduardo Levy Yeyati Universidad Torcuato Di Tella Arne Nagengast Deutsche Bundesbank Abstract We analyze the effectiveness of exchange rate interventions for a panel of 18 emerging market economies during the period 2003-2011. Using an error-correction model approach we find that on average intervention is effective in moving the real exchange rate in the desired direction, controlling for deviations from the equilibrium and short-term changes in fundamentals and global financial variables. Our results are robust to different samples and estimation methods. We find little evidence of asymmetries in the effect of sales and purchases, but some evidence of more effective interventions for large deviations from the equilibrium. We also explore differences across countries according to the possible transmission channels and nature of some global shocks. JEL-classification: F31, F37 Keywords: exchange rate; FX intervention; equilibrium exchange rate 1 1. INTRODUCTION Few macroeconomic policy topics have been as hotly debated as the exchange rate -
Revaluation of Financial Statement Due To
Academy of Accounting and Financial Studies Journal Volume 25, Special Issue 2, 2021 REVALUATION OF FINANCIAL STATEMENT DUE TO DEVALUATION OF CURRENCY– DOES FINANCIAL STATEMENT SHOW ACCURATE VALUE OF YOUR ORGANIZATION? Muhammad Nabeel Mustafa*, SZABIST University Haroon ur Rashid Khan, SZABIST University Salman Ahmed Shaikh, SZABIST University ABSTRACT Purpose: Debtors are current asset has a time of 120 days at max. During this time, the value of debtors gets changed. This study explores the effect of this time value of money. The objective of this research is to sight see the effect of the time value of money, normal inflation, and purchasing power on the comprehensive debtors/receivable side of the balance sheet, which can be devalued if key macroeconomic factors determine the devaluation percentage of a single currency. Methodology: Concerning these significant questions of the research, we grasped a pragmatic philosophy with an inductive approach. A mono-method of qualitative based on grounded theory was endorsed, which helped to unfold a new model through qualitative data analysis. Results: A new strategy is developed, which utters three components; normal inflation, time value of money, and purchasing power revealing significant contribution in literature. The effect of these constructs was not incorporated in the financial statement, showing vague financial valuation. These constructs have a significant impact on the financial statement of any organization especially with items having time components in the balance sheet, such as receivables and payables. Research Limitations: This research is limited to only one currency i.e., Pakistani Rupee but can be implemented on any currency. Practical Implication: The strategy will help auditors to pass the adjustment entry in the balance sheet to adjust the value of the currency at the year-end. -
Currencies Come in Pairs
Chapter 1.2 Currencies Come in Pairs 0 GETTING STARTED CURRENCIES COME IN PAIRS You know the advantages of trading forex, and you are excited to start Everything is relative in the forex market. The euro, by itself, is neither trading. Now you need to learn what this market is all about. How does it strong nor weak. The same holds true for the U.S. dollar. By itself, it is work? What makes currency pairs move up and down? Most importantly, neither strong nor weak. Only when you compare two currencies together how can you make money trading forex? can you determine how strong or weak each currency is in relation to the other currency. Every successful forex investor begins with a solid foundation of knowledge upon which to build. Let’s start with currency pairs—the For example, the euro could be getting stronger compared to the U.S. building blocks of the forex market—and how you will be using them in dollar. However, the euro could also be getting weaker compared to the your trading. British pound at the same time. In this first section, we will explain the following to get you ready to place Currencies always trade in pairs. You never simply buy the euro or sell the your first trade: U.S. dollar. You trade them as a pair. If you believe the euro is gaining strength compared to the U.S. dollar, you buy euros and sell U.S. dollars at What a currency pair is the same time. If you believe the U.S. -
The JPY/AUD Carry Trade and Its Causal Linkages to Other Markets
The JPY/AUD Carry Trade and Its Causal Linkages to Other Markets Brian D. Deaton McMurry University This study analyzes the causal structure underlying the popular Japanese Yen/Australian Dollar (JPY/AUD) carry trade and related financial variables. Three causal search algorithms are employed to find the relationships amongst the JPY/AUD exchange rate, the S&P 500 stock index, the Nikkei 225 stock index, the Australian Securities Exchange 200 stock index, the 10-year U.S. Treasury Note, the 10- year Japanese government bond, and the 10-year Australian government bond. The results from all three algorithms provide evidence against the theory of uncovered interest rate parity. Keywords: currency carry trade, uncovered interest rate parity, causality, vector autoregression, market linkages INTRODUCTION Long used by hedge funds and institutional investors, currency carry trade investment strategies are now becoming popular with individual investors. Several exchange-traded vehicles, such as the Invesco DB G10 Harvest Fund and the iPath Optimized Currency Carry ETN, have been developed to make it easy for the small investor to participate in carry trade strategies. The popularity of carry trade strategies coupled with ever increasing financial integration between financial markets might lead to spillover effects from currencies to stocks and bonds or vice versa. It is the goal of this paper look for these types of linkages between markets. A currency carry trade is constructed by borrowing money in a currency with low interest rates (funding currency) and simultaneously investing that money in a currency with higher interest rates (target currency) with the goal of profiting on the interest rate differential. -
Recent Characteristics of FX Markets in Asia —A Comparison of Japan, Singapore, and Hong Kong SAR—
Bank of Japan Review 2020-E-3 Recent Characteristics of FX Markets in Asia —A Comparison of Japan, Singapore, and Hong Kong SAR— Financial Markets Department WASHIMI Kazuaki, KADOGAWA Yoichi July 2020 In recent years, turnovers of Foreign Exchange (FX) trading in Singapore and Hong Kong SAR have outweighed those of Japan, and the gap between the two cities and Japan continues to stretch. The two cities consolidate trading of G10 currencies by institutional investors and others by advancing electronic trading. Additionally, a number of treasury departments of overseas financial/non-financial firms are attracted to the two cities, contributing to the increasing trading of Asian currencies in tandem with expanding goods and services trades between China and the ASEAN countries. At this juncture, FX trading related to capital account transactions is relatively small in Asia partly due to capital control measures. However, in the medium to long term, capital account transactions could increase, which would positively affect FX trading. Thinking ahead on post-COVID-19, receiving such capital flows would positively impact on revitalizing the Tokyo FX market, thereby developing Japan’s overall financial markets including capital markets. to understand market structures and revitalize the Introduction Tokyo FX market, it would be beneficial to investigate recent developments in these centers. The Bank for International Settlements (BIS), in Based on above understanding, this paper compares cooperation with the world’s central banks, conducts the FX markets in Tokyo, Singapore, and Hong Kong the Triennial Central Bank Survey of Foreign SAR. The medium- to long-term outlook for Asian 1 Exchange and Over-the-counter Derivatives Markets . -
ASIFMA RMB Roadmap
RMB ROADMAP May 2014 CO AUTHORS ASIFMA is an independent, regional trade association with over 80 member firms comprising a diverse range of leading financial institutions fromboththebuyandsellsideincludingbanks,assetmanagers,lawfirms andmarketinfrastructureserviceproviders.Together,weharnesstheshared interests of the financial industry to promote the development of liquid, deep and broad capital markets in Asia. ASIFMA advocates stable, innovative and competitive Asian capital markets that are necessary to support the region’s economic growth. We drive consensus, advocate solutionsandeffectchangearoundkeyissuesthroughthecollectivestrength andclarityofoneindustryvoice.Ourmanyinitiativesincludeconsultations withregulatorsandexchanges,developmentofuniformindustrystandards, advocacyforenhancedmarketsthroughpolicypapers,andloweringthecost ofdoingbusinessintheregion.ThroughtheGFMAalliancewithSIFMAinthe US and AFME in Europe,ASIFMA also provides insights on global best practicesandstandardstobenefittheregion. ASIFMAwouldliketoextenditsgratitudetoallofthememberfirmsandassociationswho contributedtothedevelopmentofthisroadmap Table of Contents List of Charts .........................................................................................................................................................ii List of Break-Out Boxes ....................................................................................................................................... iii Introduction ........................................................................................................................................................ -
Connectedness Between Exchange Rates: How Machine Learning Opens up Fresh Insights Timo Bettendorf and Reinhold Heinlein
Research Brief 28th edition – September 2019 Connectedness between exchange rates: how machine learning opens up fresh insights Timo Bettendorf and Reinhold Heinlein Are the exchange rates between certain currencies more What our study shows is that the results of such an estimation closely connected than those of other currencies? Answers depend, in some cases considerably, on how the contempo- to this question can be provided by econometric methods. A raneous relationships between the time series are incorporated. new study shows how machine learning can deliver useful Contemporaneous causal structures, especially, had not been insights into this issue. fully taken on board in earlier studies, which is why in our study previously used procedures led to at times considerably Exchange rates are of major importance for macroeconomic biased results. We solve this problem by using an algorithm developments and are often a topic of political debate. In a for machine learning (see Spirtes et al., 2001). This algorithm recent study (Bettendorf and Heinlein, 2019), we study how uses statistical methods to search for contemporaneous causal bilateral exchange rates between various currencies are con- structures between the variables. These causal structures are nected. We show that the US dollar and, surprisingly, the thus obtained from the data and not, as in other studies, Norwegian krone exert a relatively strong influence on other defined by the user. This means that our study generally models currencies. Such a causal relationship between two currencies contemporaneous causal effects better than previously ap- exists if the pattern of one currency’s exchange rate can be plied procedures. -
Currency Politics: the Political Economy of Exchange Rate Policy
© Copyright, Princeton University Press. No part of this book may be distributed, posted, or reproduced in any form by digital or mechanical means without prior written permission of the publisher. Introduction The Political Economy of Currency Choice The Political Economy of Currency Choice he exchange rate is the most important price in any economy, for it affects all other prices. The exchange rate is itself set or strongly influenced by government policy. Currency policy thereforeT may be a government’s single most significant economic pol- icy. This is especially the case in an open economy, in which the rela- tionship between the national and international economies is crucial to virtually all other economic conditions. Policymakers who have to answer, directly or indirectly, to constit- uents, such as voters, interest groups, and investors, are the ones who make currency policy. Like all policies, the choices available to currency policymakers involve trade- offs. Currency policies have both benefits and costs, and create both winners and losers. Those who make ex- change rate policies must evaluate the trade- offs, weigh the costs and benefits, and consider the winners and losers of their actions. Exchange rate policy provides an extraordinary window on a na- tion’s political economy. This is particularly true in countries whose economies are open to the rest of the world economy, because in such a situation currency policy has a profound impact on a whole range of For general queries, contact [email protected] Frieden.indb 1 10/23/2014 8:19:54 AM © Copyright, Princeton University Press. No part of this book may be distributed, posted, or reproduced in any form by digital or mechanical means without prior written permission of the publisher. -
The Forex Masterclass
T H E O N L I N E F I N A N C I A L S C H O O L presents FOREX MASTERCLASS HOW TO MAKE MONEY FROM HOME MICHAEL PITTMAN WHAT IS FOREX? FOREX (FX) FOREX MARKET FOREX Market is open 24 hours a day, Forex (FX) is the market five days per week. in which currencies are traded. FOREX Market is 50 times bigger than the stock market. Forex (FX) stands for Lower barriers to entry. Foreign Exchange Easier to keep up with and monitor. Market. Allows you to open a demo account where you can practice exchanging 8 Major Currencies currency. USD: US Dollar EUR: European Euro There are 8 major currencies. AUD: Australian Dollar There are 7 major currency pairs. A JPY: Japanese Yen major currency pair is when a major CAD: Canadian Dollar currency is paired with a US Dollar. CHF: Swiss Franc If a currency is not paired with a US GBP: Great Britain Pound Dollar, it is called a cross pair. NZD: New Zealand Dollar Currency pairs always have a value associated with them. F O R E X P A G E 2 WHAT IS FOREX? CURRENCY F O R E X P A G E 3 HOW DOES THIS MAKE MONEY? A pip is the smallest AUDUSD amount you can measure a currency by and it is usually equal to .001. In the United State, the smallest amount you can measure currency by is the cent and it is worth .01. If you were on vacation is Australia and wanted to exchange currency, you would need to give .75 cents for every australian dollar you wanted, because 1 AUD = 75 cents. -
Currency Order Flow and Real-Time Macroeconomic Information∗
Currency Order Flow and Real-Time Macroeconomic Information Pasquale DELLA CORTE Dagfinn RIME Imperial College London Norges Bank [email protected] [email protected] Lucio SARNO Ilias TSIAKAS Cass Business School & CEPR University of Guelph [email protected] [email protected] February 2013 Acknowledgements: The authors are indebted for constructive comments to Rui Albuquerque, Philippe Bac- chetta, Ekkehart Boehmer, Nicola Borri, Giuseppe De Arcangelis, Martin Evans, Charles Jones, Nengjiu Ju, Michael King, Robert Kosowski, Michael Moore, Marco Pagano, Alessandro Palandri, Lasse Pedersen, Tarun Ramadorai, Thomas Stolper, Adrien Verdelhan, Paolo Vitale, Kathy Yuan, Sarah Zhang and seminar participants at LUISS Guido Carli University, University of Lugano, Warwick Business School, the 2011 Capital Markets and Corporate Finance Meetings in Kunming, the 2011 Central Bank Workshop on the Microstructure of Financial Markets in Stavanger, the 2011 Conference on Advances in the Analysis of Hedge Fund Strategies in London, the 2011 Workshop on Finan- cial Determinants of Exchange Rates in Rome, the 2012 CFA Society Masterclass Series in London, the 2012 SIRE Econometrics Workshop in Glasgow, the 2012 Rimini Conference in Economics and Finance in Toronto, and the 2012 Northern Finance Association Conference in Niagara Falls. We thank UBS for providing the customer order flow data used in this paper. Sarno acknowledges financial support from the Economic and Social Research Council (No. RES-062-23-2340). Tsiakas acknowledges financial support from the Social Sciences and Humanities Research Council of Canada. The views expressed in this paper are those of the authors, and not necessarily those of Norges Bank. -
Chapter 1717
ChapterChapter 1717 FixedFixed ExchangeExchange RatesRates andand ForeignForeign ExchangeExchange InterventionIntervention Copyright © 2003 Pearson Education, Inc. Slide 17-1 Chapter 17 Learning Goals • How a central bank must manage monetary policy so as to fix its currency's value in the foreign exchange market. • The relationship between the central bank's foreign exchange reserves, its purchases and sales in the foreign exchange market, and the money supply. • How monetary, fiscal, and sterilized intervention policies affect the economy under a fixed exchange rate. • Some causes and effects of balance of payments crises. • How alternative multilateral systems for pegging exchange rates work. Copyright © 2003 Pearson Education, Inc. Slide 17-2 Chapter Organization ! Why Study Fixed Exchange Rates? ! Central Bank Intervention and the Money Supply ! How the Central Bank Fixes the Exchange Rates ! Stabilization Policies with a Fixed Exchange Rate ! Balance of Payments Crises and Capital Flight ! Managed Floating and Sterilized Intervention ! Reserve Currencies in the World Monetary System ! The Gold Standard ! Liquidity Traps Copyright © 2003 Pearson Education, Inc. Slide 17-3 Chapter Organization ! Summary ! Appendix I: Equilibrium in the Foreign Exchange Market with Imperfect Asset Substitutability ! Appendix III: The Timing of Balance of Payments Crises Copyright © 2003 Pearson Education, Inc. Slide 17-4 Introduction ! In reality, the assumption of complete exchange rate flexibility is rarely accurate. • Industrialized countries operate under a hybrid system of managed floating exchange rates. – A system in which governments attempt to moderate exchange rate movements without keeping exchange rates rigidly fixed. • A number of developing countries have retained some form of government exchange rate fixing. ! How do central banks intervene in the foreign exchange market? Copyright © 2003 Pearson Education, Inc.