FX 102 FOREX INTRODUCTION FOREING EXCHANGE MARKETS STUDY GUIDE UPDATED

FX 102 FOREX INTRODUCTION FOREING EXCHANGE MARKETS STUDY GUIDE UPDATED

CHAPTER I
FOREIGN EXCHANGE MARKETS
The international business context requires trading and investing in assets denominated in different
currencies. Foreign assets and liabilities add a new dimension to the risk profile of a firm or an
investor's portfolio: foreign exchange risk. This chapter hastwo goals. First, this chapter introduces
the terminology used in foreign exchange markets. Second, this chapter presents the instruments
used in currency markets.
I. Introduction to the Foreign Exchange Market
1.A An Exchange Rate is Just a Price
The foreign exchange (FX or FOREX) market is the market where exchange rates are determined.
Exchange rates are the mechanisms by which world currencies are tied together in the global
marketplace, providing the price of one currency in terms of another.
An exchange rate is a price,specifically the relative price of two currencies.
For example, the U.S. dollar/Mexican peso exchange rate is the price of a peso expressed in U.S.
dollars. On March 23, 2015, this exchange rate was USD 1.0945 per EUR, or, in market notation,
1.0945 USD/EUR