Foreign Exchange Questions with Complete solutions

Good Bloomberg function? - ANSWER-ECTR = Trade flows between major countries FX24 = Shows the fx session chart, looking at currency pairs and show exchange rates around other countries during trading FXCA = Currency Conversion Calculator FXFC = FX forecasts FRD = Forward Calculator FXFM: FX rate forecast model for future (shows bell curve, wider the curve the more volatile) FXC = Currency Rates Matrix, to find currency pair values What are the 3 main entities that trade currencies? - ANSWER-1. Financial Investors (buying and selling securities in foreign currencies. largest bucket of users) 2. Corporations (conducting global business) 3. Travelers (business & leisure trips change currency for personal use) What is FX reserves? - ANSWER-Key mechanisms to peg currencies, huge stack of money from which to manipulate the supply of, or demand for currency to change its value Pegged Currency examples - ANSWER-1997: Financial security of HK, sold the USD Fx reserves for HKD, and invested in the HKSE, making fortune for government, warded off speculators FX rate example: Jamaican Dollar = 129.215 - ANSWER-129 Jamaican dollars per 1 U.S. dollar To find the number of USD per Jamaican dollar, it is the reciprocal 1/129 = 0.008 or 0.8 cents per Jamaican dollar (times 100) Triangular Arbitrage - ANSWER-currency transactions are conducted in the spot market to capitalize on a discrepancy in the cross exchange rate between two currencies Triangular Arbitrage Example - ANSWER-I have 88400 Swedish Krowns, commission free trading so I convert to GBP (11.421 is the spot rate) = 88,400/11.421 = GBP 7,740 7740 GBP to USD 7740 x 1.2920 = $10,000 $10,000 x 8.8400 = 88,400 Krowns