The following points highlight the top seven characteristics of foreign exchange market. The characteristics are: 1. Most Liquid Market in the World 2. Most Dynamic Market in the World 3. Twenty-Four Hour Market 4. Market Transparency 5. International Network of Dealers 6. Most Widely Traded Currency is the Dollar 7. "Over-The-Counter" Market with an "Exchange-Traded" Segment. Characteristic # 1. Most [...]
The following points highlight the techniques used to manage foreign exchange risk. The techniques are: 1. Doing Nothing 2. Pre-Emptive Price Variation 3. Risk Sharing 4. Maintaining a Foreign Currency Bank Account 5. Transfer Pricing 6. International Forfaiting 7. Discounting of Bills of Exchange 8. Money Market Operations and a few others. Technique # 1. Doing Nothing: This method suggests [...]
The following points highlight the five main theorems on foreign exchange rate determination. The theorems are: 1. Law of One Price 2. Interest Rate Parity Theorem 3. Purchasing Power Parity Theorem 4. Fisher Effect 5. International Fisher Effect. Theorem # 1. Law of One Price: The law of one price asserts that when there are no significant costs or other [...]