1. Fintech Chapter 9: Foreign Exchange

2. Foreign Exchange Importance of trade
Exchange rate = relative value of currency

3. ENTITY
Currency
Alphabetic Code
Numeric Code
ARGENTINA
Argentine Peso
ARS
032
AUSTRALIA
Australian Dollar
AUD
036
BELGIUM
Euro
EUR
978
BELIZE
Belize Dollar
BZD
084
BRAZIL
Brazilian Real
BRL
986
CANADA
Canadian Dollar
CAD
124
CAYMAN ISLANDS (THE)
Cayman Islands Dollar
KYD
136
CHAD
CFA Franc BEAC
XAF
950
CHILE
Chilean Peso
CLP
152
CHINA
Yuan Renminbi
CNY
156
COLOMBIA
Colombian Peso
COP
170
CONGO (THE DEMOCRATIC REPUBLIC OF THE)
Congolese Franc
CDF
976
CROATIA
Kuna
HRK
191
CUBA
Peso Convertible
CUC
931
DENMARK
Danish Krone
DKK
208
EGYPT
Egyptian Pound
EGP
818
EUROPEAN UNION
FRANCE
GERMANY
HONG KONG
Hong Kong Dollar
HKD
344
ICELAND
Iceland Krona
ISK
352
INDIA
Indian Rupee
INR
356
INDONESIA
Rupiah
IDR
360
IRAN (ISLAMIC REPUBLIC OF)
Iranian Rial
IRR
364
IRAQ
Iraqi Dinar
IQD
368
ISRAEL
New Israeli Sheqel
ILS
376
JAPAN
Yen
JPY
392
KOREA (THE DEMOCRATIC PEOPLE’S REPUBLIC OF)
North Korean Won
KPW
408
KOREA (THE REPUBLIC OF)
Won
KRW
410
KUWAIT
Kuwaiti Dinar
KWD
414
LEBANON
Lebanese Pound
LBP
422
MALAYSIA
Malaysian Ringgit
MYR
458
MEXICO
Mexican Peso
MXN
484
NEW ZEALAND
New Zealand Dollar
NZD
554
NORWAY
Norwegian Krone
NOK
578
PAKISTAN
Pakistan Rupee
PKR
586
PERU
Sol
PEN
604
PHILIPPINES (THE)
Philippine Peso
PHP
608
RUSSIAN FEDERATION (THE)
Russian Ruble
RUB
643
SAUDI ARABIA
Saudi Riyal
SAR
682
SWEDEN
Swedish Krona
SEK
752
SWITZERLAND
Swiss Franc
CHF
756
THAILAND
Baht
THB
764
TURKEY
Turkish Lira
TRY
949
UNITED ARAB EMIRATES (THE)
UAE Dirham
AED
784
UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND (THE)
Pound Sterling
GBP
826
UNITED STATES OF AMERICA (THE)
US Dollar
USD
840

4. The most actively traded currencies in the world are the following
The U.S. Dollar (USD)
The Euro (EUR)
The British Pound (GBR)
The Japanese Yen (JPY)

5. Conventions for Quoting Pairs
USD per EUR. For example, an exchange rate of 1.10 means that 1 EUR can be exchanged for 1.10 USD
USD per GBR. An exchange rate of 1.28 means that 1 GBR can be exchanged for 1.28 USD
JPY per USD. An exchange rate of means that it takes JPY to equal 1 USD.

6. Cross rates
Appreciations
Depreciation
Fixed
Floating
Impact on trade

7. China/US Foreign Exchange Rate

8. Spot market
24 hours
Platforms: Thompson-Reuters, EBS, Bloomberg
Futures, options, swaps

9. Exchange Rate Determination in the Long Run
Law of One Price
Purchasing Power Parity
Big Mac Index

10. Exchange Rate Determination in the Long Run
Relative prices
Tariffs and Other Trade Barriers
Country Preferences
Productivity

11. Exchange Rate Determination in the Short Run
Immediate supply and demand for currency
US buyers of cars made in Japan
Japanese residents vacationing in Hawaii

12. Supply and Demand: Dollar-Yen Market

13. Effects of Relative Interest Rates
Earn 5% in U.S. or 6% in Country A
$100,000 in U.S. at 5% = $5,000
0.8 USD = 1 “A” : $100,000 = 125,000 A
125,000 A at 6% = 7,500 A
0.8 USD/A * 7,500 A = $6,000
Investor would borrow USD, invest in A, sell forward A exchange rate.
At what rate is investor indifferent?
$5,000 = 7,500 A or USD/A

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