Article Abstract:
Since the 1970s, British firms have been paying more attention to foreign currency markets and exchange rates. As financing became more available overseas, the currency exchange factor became more important to assessments of risk and return. The global foreign exchange market is the largest in the world, and trading on this market has doubled since 1979, reaching the level of $150 billion in daily trades by 1984 (approximately 50 times greater than trading levels experienced by the New York Stock Exchange). Upwards of 90 percent of trading on foreign exchange markets is represented by banking transactions, and 99.5 percent of all foreign exchange transactions involve the US dollar. Most 'trades' are actually capital movements meant to take advantage of changes in currency translation rates. Bid-offer spreads, deep markets, market makers, Eurodollars, Eurodeutschmarks, Eurosterling deposits,and other Eurocurrencies on foreign exchange markets are defined as terms and explained. Foreign exchange market locations are identified, and the time zones and trading times for each market are provided.
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Article Abstract:
Many theories have been advanced to explain the behavior of foreign exchange rates, but none of them are exclusively accurate. Some of the models include: the four-way equivalency model, dependent on interest rate parity; the Fisher effect and the International Fisher effect; purchasing power parity and expectations theory; the balance of payments model, based on fixed or floating exchange rates; the updated classical monetarist model; chartism, based on a predictable exchange rate based on the past; and the efficient market theory, in its weak, semi-strong, and strong variants.
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Article Abstract:
Three types of exposure to corporate treasury operations are discussed: transaction, economics, and translation. The International Fisher effect on currency exchange and the effects of devaluation on foreign exchange exposure are described. Translation exposure does not have a significant effect on currency exposure.
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