1. Watch the video clip and provide your feedback on the following areas:
Starter: Focus Group
Options Video
Watch the video clip and provide your feedback on the following areas:
Animations
Colour
Images
Voiceover
Background music
What works well?
What could be improved?
Any other comments

2. Fundamentals of Financial Services
Foreign Exchange
Chapter 7.2.1

3. Key Topic Areas Characteristics of the foreign exchange market
Currency trading
Exchange rates

4. By the end of the lesson:
Lesson Objectives
By the end of the lesson:
Everyone MUST know:
The basic characteristics of the foreign exchange market
Currency trading
Exchange rates

5. Daily foreign exchange activity exceeds $5 trillion
Changing a particular quantity of one currency for another currency
We mainly know of exchanging currencies when we go on holiday
The US dollar is regarded as the most important currency in the world and it is typical for foreign exchange rates to be quoted against the US$.
Foreign exchange activity is much larger for businesses who buy and sell things across borders
Banks and their dealers offer services to clients arising from international trade and travel with fees earned as a result.
Daily foreign exchange activity exceeds $5 trillion

6. Price at which a pair is bought and sold is the exchange rate
Currency Quotes
Trading of foreign currencies clearly involves selling one currency and buying another, the two currencies involved are described as ‘pairs’.
Price at which a pair is bought and sold is the exchange rate
Base Currency
The first currency quoted in a pair
It is always equal to one unit of that currency
Counter or Quote Currency
The second currency quoted in a pair
1 : 0.75
In this case $1 is worth £0.75
GBP
USD
When the exchange rate is being quoted, the name of the each currency is abbreviated to a three letter reference
Most commonly quoted currency pairs:
USD
JPY
USD
Eur
USD
CHF
GBP
USD
Eur
GBP

7. Quote 1.1164/66 Currency quotes GBP USD
When currency pairs are quoted, the foreign exchange trader will quote a bid and ask price:
Quote
1.1164/66
GBP
USD
When quoting, the base currency is not mentioned as the convention is that the base currency is always 1
In this case:
If a client wants to buy £100,000 he will need to pay the higher of the two prices ($1.1166) and deliver $111,660
If a client wants to sell £100,000 he will need to pay the lower of the two prices ($1.1164) and receives $111,640

8. Currency Trading
The forex market is primarily an over-the-counter (OTC) market, where brokers and dealers negotiate directly with each other.
London has grown to become the world’s largest forex market due to it’s ideal location between the Asian and American time zones
Continually provide the market with both bid (buy) and ask (sell) prices
Use the market to try to control money supply, inflation and interest rates.
Individual forex traders (i.e. retail investors) are becoming increasingly important in the global forex market.

9. Exchange Rate Activity Complete the table…
ISO 4217 Currency Codes
Country
Name of currency
Symbol
£1 = ?
AUD
GBP
CAD
CNY
DKK
EUR
HKD
INR
JPY
RUB
CHF
ZAR
SEK
USD
Working in pairs, follow the instructions to complete the table on your worksheet

10. Exchange Rate Activity Complete the table…
ISO 4217 Currency Codes
Country
Name of currency
Symbol
£1 = ?
AUD
GBP
CAD
CNY
DKK
EUR
HKD
INR
JPY
RUB
CHF
ZAR
SEK
USD
Australia
Australian Dollar
Great Britain
British Pound
Canada
Canadian Dollar
China
Chinese Yuan
Denmark
Danish Krone
Eurozone
Euro
Hong Kong
Hong Kong Dollar
India
Indian Rupee
Japan
Japanese Yen
Working in pairs, follow the instructions to complete the table on your worksheet
Russia
Russian Rouble
Switzerland
Swiss Franc
South Africa
South African Rand
Sweden
Swedish Krona
United States
United States Dollar

11. Case Study: Usain
Usain is visiting London for a short break. He is normally based in the US, so all of his money is in US dollars. He knows he will need some UK sterling to pay for taxis, buses, food and entertainment. He draws a lot of US dollars out of his US bank and sells them for UK sterling at the foreign exchange dealer’s kiosk at the airport. This means Usain has entered into a currency trade.

12. Case Study: Usain
The amount of UK sterling that Usain receives at the kiosk will be determined by the prevailing exchange rate between US dollars and UK sterling. The quoted rates might be as follows:
Dollars per Pound
1.54 – 1.64
Pounds per Dollar
0.61 – 0.65
There are two sets of quotes:
The first quote is the number of US dollars per pound.
The second quote is the number of UK pounds per dollar.
Which of the two rates will be highlighted by the kiosk assistant for Usain?

13. Case Study: Usain Dollars per Pound 1.54 – 1.64 Pounds per Dollar
0.61 – 0.65
Which of the two rates will be highlighted by the kiosk assistant for Usain?
The relevant rate for Usain is the number of UK pounds per US dollar, since he is SELLING DOLLARS FOR UK POUNDS, so the 0.61 – 0.65 is the quote that will be highlighted.
Each quote is made up of two figures, a lower figure on the left and a higher figure on the right.
The relevant side depends on whether the client at the kiosk is buying or selling the particular currency.

14. How many pounds will Usain get, assuming he is selling $1,000?
Case Study: Usain
Dollars per Pound
1.54 – 1.64
Pounds per Dollar
0.61 – 0.65
How many pounds will Usain get, assuming he is selling $1,000?

15. Case Study: Usain Dollars per Pound 1.54 – 1.64 Pounds per Dollar
0.61 – 0.65
Usain’s holiday break in the UK is now over and he still has £100 in cash. Assuming that the quote at the kiosk is still the same, how many US dollars can Usain expect?

16. Flipping an exchange rate quote
EUROs per £
1.245 – 1.255
A foreign exchange dealer is quoting the following rate for the number of euros per UK pounds.
The foreign exchange dealer’s quote of euros per UK pound needs to be flipped to provide the number of UK pounds per euro.
£s per EUR: 1/1.255 = – 1/1.245 = 0.803
So the quoted would be £s per EUR: – 0.803

17. Currency Jargon Sell rate
This is the rate at which we sell foreign currency in exchange of local currency. For example, if you were heading to Europe, you would exchange British pounds for Euros at the sell rate.
Buy rate
This is the rate at which we can buy foreign currency back from you into your local currency. For example if you were returning from America, we could exchange your US Dollars back into British pounds at the buy rate of the day.
Definitions and examples from: Travelex Ltd Website

18. Plenary Have you met the learning objectives?
Use “Assess my Learning” sheet

19. Testimonials
Use “Assess my Learning” sheet