Final Currency Exchange

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Final Currency Exchange

  1. 1. CURRENCY EXCHANGEBy:Kapil P. IsraniRoll No. 16
  2. 2. INTRODUCTION• Bretton woods system of monetary management• OTC Market• Vehicle Currency
  3. 3. EXCHANGE RATE MECHANISM• DIRECT Eg: 1 USD = 44.45• INDIRECT Eg: Rs. 100=USD 2.2548
  4. 4. MARKET PARTICIPANTS• Banks• Commercial Companies• Central Banks• Hedge Funds (Speculators)• Money Transfer/Remittance co’s.
  5. 5. DETERMINANTS OF EXCHANGE RATES• International parity condition• Balance of payment model• Asset market model
  6. 6. ion, Inc.The relation Between the Current Dollar/Euro Exchange Rate and the Expected Dollar Return on Euro Deposits Today’s dollar/euro exchange rate, E$/€ 1.07 1.05 1.03 1.02 1.00 0.031 0.050 0.069 0.079 0.100 Expected dollar return on euro deposits, R€ + (Ee$/€ - E$/€)/(E$/€)
  7. 7. ion, Inc.Determination of the Equilibrium Dollar/Euro Exchange Rate Exchange rate, E$/€ Return on dollar deposits E2$/€ 2 E1$/€ 1 3 E3$/€ Expected return on euro deposits R$ Rates of return (in dollar terms)
  8. 8. ion, Inc. Effect of a Rise in the Dollar Interest RateExchange rate, E$/€ Dollar return E1$/€ 1 1 E2$/€ 2 Expected euro return R1 R2$ Rates of return $ (in dollar terms)
  9. 9. ion, In c. Effect of a Rise in the Euro Interest RateExchange rate, E$/€ Dollar return Rise in euro interest rate E2$/€ 2 E1$/€ 1 Expected euro return R$ Rates of return (in dollar terms)
  10. 10. DETERMINANTS OF EXCHANGE RATES• International parity condition• Balance of payment model• Asset market model
  11. 11. DETERMINANTS OF EXCHANGE RATES• Economic Factors:-• Inflation• Interest rates• Budget / Trade deficits• Fisher effect (Domestic & International)
  12. 12. FINANCIAL INSTRUMENTS• SPOT (T+2 transaction)• FORWARD (Forward future date)• SWAP• FUTURE (3 months)• OPTION• SPECULATION
  13. 13. THANK YOU

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