Exchange Rate Wenmin wang

Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion

What is Exchange rate? A pair of shoes USD JPY 1. $80 ¥81, $80 ¥79,000 Equilibrium: $80 ¥80,000

What is Exchange rate?  The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another.

Why exchange rate?  To keep the buying or purchasing power of buyers the same all over the world

How Does Exchange rate Influence our daily life?  Importing and exporting  Employment rate  Domestic price of commodities  Study and travel abroad

Exchange Rates  Direct Rate  Indirect Rate  Cross-Rate

Hedge  Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.  Forex Hedge - Spot Contracts - Foreign Currency Options

Triangular Arbitrage of Exchange Rates  the act of exploiting an arbitrage opportunity resulting from a pricing discrepancy among three different currencies in the foreign exchange market

Triangular Arbitrage of Exchange Rates Calculation  Step 1. Draw a triangle  Step 2. Identify the cross rate  Step 3. Find the Implied Cross Rate  Step4. Comparing the two Cross Rate  Step 5. Identify Arbitrage possibility  Step 6. Calculate Arbitrage Profit

Triangular Arbitrage of Exchange Rates  Example: Bank A: ¥82/$ Bank B: $1.6/£ Bank C ¥128/£  Is there any arbitrage opportunity?  If yes, provide you ¥100,000,000 yen, how much arbitrage profit can you get?

Conclusion  Exchange rate the rate at which one currency can be exchanged for another  Hedge is making an investment to reduce the risk of adverse price movements in an asset  Triangle Arbitrage of Exchange Rates

Reference    currency-hedging-strategy.asp currency-hedging-strategy.asp  %BE%A7%D0%AC %BE%A7%D0%AC  calcualtions/ calcualtions/  dollar-store/ dollar-store/

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