In: Business and Management

Submitted By sanaw
Words 292
Pages 2
The candidate should be able to:
a. define direct and indirect methods of foreign exchange quotations, and convert direct (indirect) foreign exchange quotations into indirect (direct) foreign exchange quotations;
b. calculate and interpret the spread on a foreign currency quotation, and explain how spreads on foreign currency quotations can differ as a result of market conditions, bank/dealer positions, and trading volume;
c. calculate and interpret currency cross rates, given two spot exchange quotations involving three currencies;
d. calculate the profit on a triangular arbitrage opportunity, given the bid–ask quotations for the currencies of three countries involved in the arbitrage;
e. distinguish between the spot and forward markets for foreign exchange;
f. calculate and interpret the spread on a forward foreign currency quotation, and explain how spreads on forward foreign currency quotations can differ as a result of market conditions, bank/dealer positions, trading volume, and maturity/length of contract;
g. calculate and interpret a forward discount or premium and express it as an annualized rate;
h. explain interest rate parity, and illustrate covered interest arbitrage;
i. distinguish between spot and forward transactions, calculate the annualized forward premium/discount for a given currency, and infer whether the currency is "strong" or "weak"

FC:DC Foreign currency in domestic currency Bid Price Price the dealer will pay Ask Price Price the deal will sell at Spread Bid ask spread Is expressed as a percentage of either bid, midpoint, or ask rate. Spread depends on mkt conditions, dealer's position, and trading volume for the currency pair Annualized ((forward rate - spot rate)/spot rate) * (360/n)
discount/ premium Interest Rate Any forward premium or discount just offsets differences in…...

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