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Exchange Rate. Wenmin wang. A genda. Exchange Rate Hedge Triangle Arbitrage Conclusion. What is Exchange rate?. A pair of s hoes USD JPY 1. $ 80 ¥81,000 2. $80 ¥79,000 Equilibrium: $80 ¥80,000. What is Exchange rate?.
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Exchange Rate Wenmin wang
Agenda • Exchange Rate • Hedge • Triangle Arbitrage • Conclusion
What is Exchange rate? • A pair of shoes • USD JPY 1. $80 ¥81,000 2. $80 ¥79,000 Equilibrium: $80 ¥80,000
What is Exchange rate? • The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another.
Why exchange rate? • To keep the buying or purchasing power of buyers the same all over the world
How Does Exchange rate Influence our daily life? • Importing and exporting • Employment rate • Domestic price of commodities • Study and travel abroad
Exchange Rates • Direct Rate • Indirect Rate • Cross-Rate
Hedge • Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract. • Forex Hedge - Spot Contracts - Foreign Currency Options
Triangular Arbitrage of Exchange Rates • the act of exploiting an arbitrage opportunity resulting from a pricing discrepancy among three different currencies in the foreign exchange market
Triangular Arbitrage of Exchange Rates Calculation • Step 1. Draw a triangle • Step 2. Identify the cross rate • Step 3. Find the Implied Cross Rate • Step4. Comparing the two Cross Rate • Step 5. Identify Arbitrage possibility • Step 6. Calculate Arbitrage Profit
Triangular Arbitrage of Exchange Rates • Example: Bank A: ¥82/$ Bank B: $1.6/£ Bank C ¥128/£ • Is there any arbitrage opportunity? • If yes, provide you ¥100,000,000 yen, how much arbitrage profit can you get?
Conclusion • Exchange rate the rate at which one currency can be exchanged for another • Hedge is making an investment to reduce the risk of adverse price movements in an asset • Triangle Arbitrage of Exchange Rates
Reference • http://www.yoube.com/watch?v=lKu2LAgEcpUut • http://www.xe.com/ • http://www.investopedia.com/ask/answers/forex/forex-hedge-and-currency-hedging-strategy.asp • http://zhpan.com.cn/w/?l=cn&query=%CB%BF%CD%C8%CB%AE%BE%A7%D0%AC • http://blogs.swa-jkt.com/swa/anthonytrickey/tag/exchange-rate-calcualtions/ • http://blogs.roanoke.com/shoptimist/2013/06/whats-your-favorite-dollar-store/