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U JUST GT PUNKED
MUAHAHAHAHAHAHA
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Countries that hold the value of their currency will certainly gain in terms of
export competitiveness, this is because goods exported from a country will be relatively
cheaper and importing countries will likely to buy goods at a cheaper rate.
Foreign exchange reserves will have surpluses from the gains of trade. Export >
import will give a positive net balance in the trade balance.
(98 words)
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FX dealers¶ quote two way prices, being prices at which they are prepares to both
buy and sell foreign currencies to other market participants. FX brokers obtain the best
prices in the global FX market and match FX dealers buy and sell orders for a fee
Speculators buy and sell foreign currencies in the hope of making profits from
exchange rate movements. An arbitrageur conducts a series of FX transactions to gain
from price differentials in different FX markets.
(186 words)
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Beginning
RM/AUD = 1 / 2.7000
= 0.3704
Traded
RM/AUD = 1 / 3.8000
= 0.2632
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Beginning
AUD/RM 2.7000
Traded
AUD/RM 3.8000
Yen/USD 0.0080
F$/USD 0.5900
Yen/D$ 0.01356
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Currency options
An option is a contract that gives the holder the right, but not the obligation, to buy or sell
a given quantity of an asset on or before a specified data in the future, at prices agreed
upon today. Currency options provide the right to purchase or sell currencies.
Currency futures
A range of prices are offered and also that the purchaser does not have to fulfill the
contract, it can be allowed to lapse.
Because the buyer of an option has the right but not the obligation to conduct a
transaction, the seller of an option will charge the buyer a premium
iii) Potential losses for option holders are limited; maximum the premium paid to buy the
options contract.
Insurance policy claim is made where the options policy pays out the difference when the
market goes above the guaranteed price.
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Call options can be purchased by speculators who expect the currency who expect the
currency to appreciate.
Put options on a specified currency can be purchased by speculators who expect that
currency to depreciate
For example, currency call options are commonly purchased by corporations that have
payables in a currency that is expected to appreciate. Currency put options are commonly
purchased by corporations that have receivables in a country that is expected to
depreciate.
Speculators may purchase call options on a currency that they expect to be appreciate.
Speculators may purchase put options on a currency that they expect to depreciate.
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When the decision to exercise the option, the premium is paid when the option is bought.
The option-writer receives the premium payment whether or not the option-buyer
eventually exercises the option.
With a call option, the writer retains the full premium so long as the current market price
remains below the exercise price. If the market price goes above the exercise price, the
writer begins to lose the premium. If the market price rises above the exercise price plus
the premium (The break-even price), the writer is in loss position.
With a put option the writer retains the full premium so long as the current market price
remains above the exercise price. If the market goes below the exercise price, the writer
begins to lose the premium. If the market price falls below the exercise price plus the
premium (the break-even price), the writer is in loss position.
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? ± 0.96 ± 0.009 = 0
¥80.00/$NZ ¥120.00/US$
$NZ1.6000/US$
Convert $NZ to ¥,
Convert ¥ to US$,
Profit in $NZ,
Profit in US$,
The information on Euro at both banks is revised to include the bid/ask spread. Based on
these quotes, you can no longer profit from locational arbitrage. If you buy Euro from
Citibank New York at US$0.9670/¼ and sell to Barclays London at US$0.9640/¼ you
would make a loss.
If you tried the other way around and buy euro from Barclays London at US$0.9660/¼
and sell to Citibank New York at US$0.9650/¼ you would also make a loss.
To achieve profits from locational arbitrage, the bid price of one bank must be higher
than the ask price of another bank.
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The possibility of arbitrage opportunities have been greatly reduced with the advent of
modern telecommunication system. Financial institutions engage in arbitrage create
pressure on the price of a currency that will remove any pricing discrepancy.
Small discrepancies are unlikely to generate any gains due to transaction costs and/or ask
bid spreads. Only large financial institutions have the technology and large volume of
foreign currency to do this transaction. Individual arbitragers are likely to have great
amount of reserve to gain from arbitrage opportunities and if there¶s a gain, it may be
faced out by the transaction costs.
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Receive = S$10,000,000
= S$10,000,000 x US$0.67
= US$6,700,000
= S$9,433,962.264 x US$0.65
= US$6,132,075.472
= US$6,132,075.472 x (1.08)
= US$6,622,641.509
Currency option hedge ± buy put
= US$6,405,000
Unhedge
= US$6,755,000
Base on the comparison, unhedge strategy yield more. Alpha should not hedge its
receivables.