Professional Documents
Culture Documents
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“Forex is a very
dynamic market,
with huge liquidity,
that trades in every
corner of the planet
Earth.”
- Cummings, J. N., Butler, B., & Kraut, R.
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THREE PILLARS OF FOREX BUSINESS
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HOW PEOPLE ▫ Some invest in the market itself
PARTICIPATE
▫ Dollar to Euro
▫ Not as widespread as the regular
stock market
▫ Relative value trade
▫ World events have big impact on
whole market
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“When exchange rates are not fixed, a crucial role is
played by either legal restrictions on asset
holdings or anticipated government
“
intervention. These are the only forces that
determine exchange rates when rates are not
explicitly fixed, and these are not comparable
to the fundamentals that determine prices in
other markets.”
- Wallace, N
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GOVERNMENT
INTERVENTION ▫ Federal Reserve
▫ Intentional appreciation and
depreciation
▫ Low interest rates → more
demand
▫ Monetary/quantitative easing
▫ U.S. market affects every other
9 market in the world
“Although the Federal Reserve
does not recognize it, it sets
“
monetary policy not just for the
United States but also for the
world.”
-Raghuram Rajan
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EXCHANGE
RATES IN THE
PRIVATE
MARKET Actual exchange vs. Equilibrium
rates exchange rates
Government
11 intervention?
GEOPOLITICAL EVENTS
European Brexit
Debt Crisis
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Sovereign debt crisis
14 FX Currency Depreciation
Brexit
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Leaving the E.U. gives up tariff-free trade
BREXIT
AND THE
POUND
Adding tariffs adds costs to investors
interested in the U.K.
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Greece’s Financial Failure
● Structured an untenable arrangement
○ Off-market FX rate
○ Lenient rules
● By the date of the forward contract, Greece did not possess the
money or the creditworthiness to pay debts
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Japan’s
Aging
Population
http://www.economist.com/blogs/dailychart/2010/11/japans_population
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Japan’s Slow Growth
● An aging population +
● No M2 growth +
● Stagnating supply of money =
● Currency appreciation
● More expensive currency =
● Less exports =
● Weakened economy
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IN CONCLUSION
▫ Overview of Forex
market
▫ Government
participation
▫ Geopolitical events
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Bibliography
Corsetti, Giancarlo, Presenti, Paolo, Roubini, Nouriel. (2002). The Role of Large Players in
Currency Crises. Preventing Currency Crises in Emerging Markets, 8303, 2-47.
Schmidt, Robert. (2006, Robert Lang Publishing). The behavioral economics of foreign
exchange markets; a psychological view on human expectation formation in foreign exchange markets. Reference & Research Book News Nov. 2006.
Academic OneFile. Web. 14 Oct. 2016.
Cummings, J. N., Butler, B., & Kraut, R. (2002). The quality of online social relationships.
Phil's stock world: The 3 pillars of forex (2016). . Chatham: Newstex. Retrieved from http://search.proquest.com/docview/1795683595?accountid=
IBISWorld Business Environment Profiles. (2016, August). UK Pound Sterling Exchange Rate.
Retrieved October 13, 2016.
IBISWorld Business Environment Profiles. (2016, August). Japanese Yen Exchange Rate.
Retrieved October 13, 2016.
Karpava, M. (2012). Determinants of forex market movements during the European Sovereign
debt crisis: The role of credit rating agencies. (Unpublished master's thesis). Jonkoping International Business School.
Rajan, C. (2011). Currencies Aren't the Problem. Retrieved October 14, 2016, from
https://www.foreignaffairs.com/articles/united-states/2011-03-01/currencies-arent-problem
Shapiro, D. M. (2013). Greece, Derivatives, and FX: What Went Wrong? Journal of Corporate
Accounting & Finance, 24(6), 15-17. doi:10.1002/jcaf.21886
Communications of the ACM, 45(7), 103-108.
Wallace, N. (1990). Why markets in foreign exchange are different from other ma. Federal
Reserve Bank of Minneapolis.Quarterly Review - Federal Reserve Bank of Minneapolis, 14(1), 12. Retrieved from
22 http://search.proquest.com/docview/227781212?accountid=8175
Any questions?
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