Foreign Exchange and Money Markets: Theory, Practice and by Bob Steiner

By Bob Steiner

Floating charges, central-bank intervention, derivatives buying and selling and the very excessive volumes of speculative and round the clock buying and selling are only a number of the aspects of the foreign currency echange market that make it a hugely dynamic and risky area. This booklet addresses the sensible functions of forex trading and funds industry buying and selling and gives entire assurance of those markets. insurance contains:

  • What the tools are
  • How and why they're used - by way of either financial institution purchasers and company end-users
  • How the various tools are associated one to another
  • How you rate them
  • Structure of the marketplace, EMU etc
  • The variety of hazards bobbing up from dealings in those tools that impact banks and corporates
  • How those hazards are measured and controlled
  • Brings jointly quite a number sensible, proper fabric on foreign currencies and funds industry trading
  • Focuses on buying and selling events in addition to on calculations
  • International in insurance, the ideas and strategies coated are usually not limited to any kingdom or institution

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Extra info for Foreign Exchange and Money Markets: Theory, Practice and Risk Management (Securities Institute Global Capital Markets)

Sample text

This process continues until the nearest coupon payment outstanding. The value thus reached is finally discounted back to the transaction settlement date. Throughout the process, both the calculation of each coupon payment and each discounting are performed using the exact number of days in the relevant coupon period. 5% per annum is issued on 16 May 2000 with a maturity of 5 years. 5%. What amount do you pay? The previous coupon date was 16 May 2003. 56. 63. 79. 47. 045 × 360 This is therefore the amount for which the CD can be purchased.

M. in Europe). STIBOR is the reference rate in Stockholm for Swedish kronor, BUBOR for forints in Budapest etc. • Fixed rate or floating rate Many instruments pay a fixed rate – that is, an interest rate or coupon which is determined when the instrument is issued and remains fixed throughout its life, regardless of whether the interest is paid only at maturity or on several occasions. Others pay a floating rate. This means that the interest rate is changed in line with market conditions at certain predetermined times (for example, refixed each 6 months to the current LIBOR).

This is the same as the cash investment needed now, at the current market yield, to achieve this amount at maturity. This present value depends, as explained in Chapter 2, on the yield he expects to earn, the time to the cashflow and the size of the cashflow. 40 Foreign exchange and money markets Price = present value The coupon paid at maturity of a CD is calculated at the coupon rate, for the term of the CD, based on the CD’s face value: Coupon amount = face value × coupon rate × days from issue to maturity year The total maturity proceeds of a CD are the face value plus the coupon: Maturity proceeds = face value + face value × coupon rate × days from issue to maturity year Exactly as with the maturity proceeds of a fixed deposit, this can be rewritten slightly more neatly as follows: Maturity proceeds = face value × 1 + coupon rate × days from issue to maturity year The value of this CD now – the amount which must be paid to buy it – is the present value now of the maturity proceeds: Amount paid days from issue to maturity year days from settlement to maturity 1 + yield × year face value × 1 + coupon rate × = The price is normally quoted based on a face value amount of 100.

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