1. Exchange Rate Wenmin wang

2. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion

3. What is Exchange rate? A pair of shoes USD JPY 1. $80 ¥81,000 2. $80 ¥79,000 Equilibrium: $80 ¥80,000

4. 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.

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

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

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

8. 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

9. 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

10. 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

11. 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?

12. 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

13. Reference  http://www.yoube.com/watch?v=lKu2LAgEcpUut http://www.yoube.com/watch?v=lKu2LAgEcpUut  http://www.xe.com/ http://www.xe.com/  http://www.investopedia.com/ask/answers/forex/forex-hedge-and- currency-hedging-strategy.asp http://www.investopedia.com/ask/answers/forex/forex-hedge-and- currency-hedging-strategy.asp  http://zhpan.com.cn/w/?l=cn&query=%CB%BF%CD%C8%CB%AE %BE%A7%D0%AC http://zhpan.com.cn/w/?l=cn&query=%CB%BF%CD%C8%CB%AE %BE%A7%D0%AC  http://blogs.swa-jkt.com/swa/anthonytrickey/tag/exchange-rate- calcualtions/ http://blogs.swa-jkt.com/swa/anthonytrickey/tag/exchange-rate- calcualtions/  http://blogs.roanoke.com/shoptimist/2013/06/whats-your-favorite- dollar-store/ http://blogs.roanoke.com/shoptimist/2013/06/whats-your-favorite- dollar-store/

14. Any Questions?