Tài liệu Tiếng Anh | Đại học Ngoại Ngữ - Tin Học Thành Phố Hồ Chí Minh

Introduction to FX Markets Phan Vũ Ngọc Lan 1 CROSS RATE 2 1 Cross Rate
A cross rate is the exchange rate between two
currencies when neither are official currencies of
the country in which the quote is given 3 Cross Rates
• Cross rates helps in the determination of exchange rate
between two countries with help of one mutual country. 4 2 Direct quote
• It state how much units of local currency is needed
to purchase a unit of foreign currency 5 Indirect quote
• AN indirect quote represent how much units of
foreign currency is required to purchase/sell one unit of local currency.
• Indirect Quote = 1/ Direct quote 6 3 Exercise 1 Country $ Euro Pound Peso Yen C$ Canada 1.3689 - Japan 109.48 - Mexico 11.3921 - United 0.5460 - Kingdom Euro 0.8222 - United States - 7 Cross Rate • USD/VND= 22.1305 - 15 • VND/USD = ??
• => X/Y =a–b => Y/X = ?
• X/Y = a- b => Y/X = 1/b – 1/a 9 4 • Market inform – X/Y = a - b – X/Z = c - d
– -> Calculation cross rate Y/Z , Z/Y – Y/Z= c/b – d/a – >> Z/Y= a/d – b/c 10
Spot Market Quotations (cont.)
• Calculating cross-rates (cont.)
– Example 3: Crossing two direct FX quotations: USD/EUR0.7650–55 USD/JPY105.40–50
To determine the EUR/JPY cross-rate: 11 5
Spot Market Quotations (cont.)
• Calculating cross-rates (cont.)
– Example 4: Crossing a direct and indirect FX quotation: USD/JPY 105.40–50 GBP/USD 1.9170–75
To determine the GBP/JPY cross-rate: 12
Spot Market Quotations (cont.)
• Calculating cross-rates (cont.)
– Example 5: Crossing two indirect FX quotations: AUD/USD0.7862–69 GBP/USD1.9170–75
To determine the AUD/GBP cross-rate: 13 6 Exercise 2 14
How we can profit from FX market
• Principle trade : buy low ; sell high • A/B = x/y • A/B = z/t • -Condition : y t 15 7 Example
• At London : USD/VND = 22,120 – 25
• At NewYork: USD/ VND=22,128 – 30
• => Question: Do we earn profit ? 16 ARBITRAGE 17 8 Arbitrage
• In practice we often see temporary deviations from
law of one price. Mostly, these are so small that
transaction costs wipe out the potential gains.
• However, in some short lasting occasions they reach
to levels that traders can make arbitrage profits.
• These deviations fade away quickly, as traders buy
in the low price environment and sell in high price environment. 18 Geographic Arbitrage USD Quotes in CHF London Tokyo CHF 1.7140/60 CHF1.7165/70
Buy USD in London @1.7160
Sell USD in Tokyo @1.7165
CHF5000 gain for every USD10m 19 9 Arbitrage Profit • Buy 10m USD at 1.7160 • Pay 17,160,000 CHF • Sell 10m USD at 1.7165 • Receive CHF17,165,000
• Net gain at 2T is CHF 5,000 20
Cross Rates and Triangular Arbitrage •
• For instance when Citibank asks UBS its Swiss
Franc rate, that rate is quoted against USD unless otherwise stated.
• Since bulk of dealings are done against the USD,
the "market rate" for any currency at any moment is
best reflected in its exchange rate against USD. 21 10