New answers tagged foreign-exchange
0
Buy the EUR/USD at 1.10380 and that means that 1 euro buys 1.10380 dollars. It also means long-the-euro and short-the-dollar. Now take the reciprocal and 1 dollar buys 0.90596 euros.
Then also buy the USD/JPY at 107.310 and that means that 1 dollar buys 107.310 yen. It also means long-the-dollar and short-the-yen.
Since the pair of transactions represents ...
0
To hedge against currency risk, you can convert your base currency to the trading currency first, then set up a forward exchange contract to convert the trading currency back to your base currency.
The FX forward exchange contract has a known profit/loss, which you can then factor into your trading decisions.
Example
Suppose the current exchange rate is ...
7
Forex markets are closed on weekends, so the prices are stale.
1
"How" the hand does anything is easily answered by considering what the hand "really is".
"The invisible hand" is a metaphor for the concept that
Where there is a way that can be found to make money by undercutting what someone else is doing then someone (or entity) will do it.
or - When an opportunity exists to make a profit by reducing ones costs ...
2
The key question is what the currency change does to the fundamental value of the company.
If the company is an American widget company AmCo with a primarily American customer base and a primarily American supply chain, then it should be broadly insulated against the price of Euros. (At least, until you consider irritating things like competitors. There's ...
8
If the shares are fungible between the exchanges, you are correct that the prices will be kept nearly equivalent by arbitrage. The missing piece to understand how the price reacts to currency fluctuations is the fundamentals of the company. This applies regardless of whether the shares are traded in a single currency or multiple currencies. It's a matter of ...
11
It doesn’t
Dual-listed companies are more complex than you think. They are not a single company listed on two exchanges, they are two separate companies that have claims of the cash flow of the same business under the terms of their equalization agreement. So you can’t buy a share on one exchange and sell that same share on the other.
In theory, because ...
1
What you are describing is called Interest Rate Parity but without considering your fx risk (after earning interest in the foreign currency will I be able to buy the domestic currency back at the same rate). However you can remove the fx risk with a forward fx swap.
https://en.wikipedia.org/wiki/Interest_rate_parity
Arbitrageurs can use covered-interest ...
0
Excellent answers all - one basis to add .
Risk Reward ratio - the point is (as explained above ) when someone is “paying” or “asking” a premium there is a counter bargain . Essentially when a party is assuming risk they ask for a premium . And then they asking you to assume risk then they are paying you a premium ( like the example cited ) . Search for the ...
1
Their interests rates are not high because the borrowers are stupid. They are high because they have a lot of inflation, so the 1 billion simoleons you borrow today is worth a lot more than the 1 billion you pay back in 1 year. For the lender to break even, you must also pay for the inflation on top of default risk. This is actually the case everywhere, but ...
0
Nothing, and that’s exactly what’s happening
For example, nonresidents hold about 2B USD worth of Ukrainian bonds denominated in UAH which yield about 16%.[1][2] (in Ukrainian)
1
IMHO, this is a bad idea unless you understand the economy of the country you mentioned. No two country is the same when coming to similar high bank interest rates. There is a chance that the currency inflation and bad exchange rates may wipe out your interest gain.
A country exchange rate is highly dependent on the country currency flow, i.e.
Foreign ...
19
The other answers are correct, but I would like to explain the problem from a different perspective:
When some scheme seems to offer you free money for nothing, then you should always ask yourself why someone offers you that scheme. Why would a foreign government offer you to give them a loan with a high interest rate when they could just as well give you a ...
79
assuming the currency value with respect to USD stays stable in that year.
This is where your analysis breaks down. The fact that the foreign bond pays a higher interest rate indicates that the currency will weaken relative to the dollar over the year, otherwise many investors would buy these bonds as an arbitrage opportunity, driving the price up (and ...
32
Because currency risk is not the only risk in this scenario. The risk of the developing country (the state) not servicing their obligations are the bigger risk, hence the very high interest rates.
Think of it as investing in High Yield bonds (junk bonds) - interest is high because risk is high.
Rating agencies rate countries (like they do corporations) for ...
1
This can be any of the following schemes.
Ponzi scheme.
Any of the Forex trading scam schemes
A pump and dump sales scheme fund, that trick misinformed investor using regression toward the mean to harvest money from the gullible greedy investor. It doesn't matter what kind of funds is it, all tricks are similar.
Here is how the scheme works regression ...
2
Asset management is a category that the Financial Services Commission (FSC), which is the Mauritian government regulator for financial markets, lists as a licensed activity under code FS-1. Assets Management. Therefore, I would check whether the company purporting to manage funds hold any regulatory status there, as a first step in the due diligence process. ...
3
I will answer your question from the assumption that you are referring to “spot” forex trading from a “margin” account (although the answers could be applicable to trading futures or other forex instruments even with no leverage or 100% margin), whether exchange-traded or off-exchange:
Trade example: If you buy 1000 units of EUR/USD and the ask price is 1....
Top 50 recent answers are included
