Section C

Date: 2015-10-07; view: 473.

· Dealer's Lingo

· Look through some terms used when dealing foreign exchange.

С1

· What, in your opinion, are the essentials for a successful telephone call?

· What sometimes goes wrong in telephone calls?

C2

· Now listen to Alan King receiving a call from Jan Ackerman, a dealer in the Foreign Exchange department of a Dutch bank, and answer these questions.

1. Does it stand to reason that Alan and Jan know each other very well? Why do you think so?

2. What currency does Jan want to deal in?

3. Is it a big deal or a small deal?

4. Is it going to be a spot or a swap rate?

5. What's the swap for a small amount, and what's the actual spot?

6. What was the amount of dollars sold against D marks?

C3

· In quoting rates, note that Alan often specifies only the pips, that is the third and fourth decimal places of the exchange rate. Also, because he does not know whether Jan wants to buy or to sell dollars, he quotes a spread of rates, that is both the rates at which his bank will buy and sell dollars. Now listen carefully to the telephone conversation again and write in below each of the four rates which are quoted.

C4

· Listen to the telephone conversation again. As you do so, fill in Jan's settlement form.

C5

· Look at the following extracts. Listen to the telephone conversation again and write down in the spaces provided the words that Alan and Jan actually use, instead of the words in italics.

1. Good, what's……………….. , please? (the exchange rate for dollars against Deutschmarks)

2. I have probably a small interest in two weeks, ………………… (lending one currency and borrowing another for a fixed period of time)

3. OK, ………………. (wait a moment). For two weeks ………………….. ? (beginning two working days from now)

4. Less than a………………….. ? (million dollars)

5. Can you give me……………………? (the exchange rate that will actually he used for funds exchanged two working days from now)

6. OK, I can………………….. (sell you half a million dollars in exchange for Deutschmarks)

7. So two fifty-nine ninety-one is the outright. ………………………………….. will be the ... (the date on which our money is available in your account and yоur money is available in our account)

8. Just a second, I've lost my…………………… (chart or table showing days, months and dates)

9. ………………………… . Thank you very much, Jan. (We have agreed on the sale and purchase of half a million dollars.)

C6

· A dealer at Bank В telephones the Cash Manager at Company С to check on the company's currency needs. Work in pairs, one person being the dealer and the other the Cash Manager. See if you can reach a deal.

Section D

D1

· Read the following report about currency rates and then look at the graphs below which show the movement of the four currencies during the week in question. Which graph shows which currency?

In a quiet week, the US dollar continued its upward course, again trading at nearly three Deutschmarks. The dollar was supported by commercial demand, as normal inter-bank trading declined and the market's major operators began squaring their positions for the year-end. The forecast of lower US interest rates and of a cut in the Federal Reserve discount rate did not lead to any downturn in the US currency and the dollar closed at DM 2.9925.

The Deutschmark was hardly changed, moving in a narrow range in lack-lustre trading in Frankfurt. There was no central bank intervention to weaken the dollar against the mark. Trading volumes were low as the markets decline towards the end of the year.

Sterling has been volatile lately, due to its status as a petrocurrency, and at the beginning of the week it fell against the dollar and other major currencies, as North Sea oil prices eased on the European spot market. Friday saw a slight recovery, however, due to the covering of short positions, and at close of trading the pound stood at USD 1.3016.

Falls in oil prices have opposite effects on the pound and the yen, as Japan needs to import nearly all its considerable energy requirements. This has meant that the yen has continued its steady climb, levelling slightly towards the end of the week. Against the dollar it has remained little changed since mid-January, but the yen has outperformed European currencies for most of the year. Sterling started the year at around JPY 325, touching a peak of JPY 344 on May 14. It closed on Friday at JPY 337.

D2

· Now read the report again and then complete the information below to show the latest currency rates mentioned.

USD 1=………….

GBP 1=………….

GBP 1=………….

· On this basis, work out the following cross rates:

USD 1= JPY .....................

GBP 1= DM……………..

D3

· On the basis of the information in the report above, say whether the following statements are true or false.

1. The report was written in mid-January.

2. The dollar firmed up against the Deutschmark during the week.

3. Big banks were more interested in balancing their currency positions than in normal trading.

4. Possible changes in the US interest rates and the discount rate did not affect the dollar rates.

5. The Deutschmark was traded in large amounts in Frankfurt.

6. The exchange rates of the British pound have changed quickly recently.

7. Banks were dealing in sterling on Friday in order to square their currency positions.

8. Falls in oil prices mean that the yen rates go up.

9. The yen rate against the dollar has been roughly the same for eleven months.

10. It is possible to buy more yen with Swiss francs now than it was earlier in the year.

D4

· Look at the figures which show the US dollar currency position of bank at the close of business on April 14th. On the basis of this information, say whether the bank's total position in US dollars is long or short and if so by how much, or whether the bank has squared its total position.

Accounts in US dollars

D5

· Read the text about foreign exchange rates and forex forecasting

Foreign exchange rates are never stable. They move, and sometimes with dramatic rapidity.

A nominal exchange rate move is the total observed movement in the exchange rates. A real exchange rate move is the nominal rate movement adjusted for the differential in inflation.

To conduct international payments banks maintain sufficient working balances in all major currencies.

Dealers are the people who are directly involved with day-to-day dealing in foreign exchange, the buying and selling of one currency for another at in agreed rate for delivery on specific dates into specific accounts in specified centers. They close out short and long positions through purchases and sales and deal with profits and risks of foreign currency trading.

Forecasting of foreign exchange rates movements is not a science but an art. But there are some approaches that yield good results. The dealer must always be in the picture of bond, commodity and equity market developments. Changes in interest rates and pending deals bring about forex movements. Market sentiment may change the situation very quickly.

Economic and financial indicators must be constantly watched to take timely decisions.

In the former days domestic considerations were of paramount importance now markets are driven by both domestic and international events.

Market rumours usually precede upcoming political and economic events. If a rumour is credible the market acts accordingly and the event itself may not produce any changes in the market situation. This process is reflected in the saying “Buy the rumour, sell the fact”.

Economic growth is facilitated by stable prices. The latter is the concern of central banks, which posses considerable financial resources and can reduce volatility if markets get carried away.

Limited central bank intervention at the right time may turn the market.

The customer takes up positions in foreign exchange by his expectations as to future rate trends. These expectations are influenced by the extremely large number of factors. The latter can be divided up systematically into fundamental and technical factors.

· Consider the following points. Be prepared to share your ideas with a partner. Look at the dialogue (given as an example) and be ready to act out your own dialogues.

Dialogue

Client: What is the meaning of real exchange rate?

Broker: Inflation changes nominal exchange rate. If British inflation has been 10 percent over the past year, while American inflation has been 0 percent, the pound sterling devalues against the dollar by 10 percent.

Client: But the nominal rate does not reflect this change. Does it?

Broker: No it doesn't. We do not sell it. But it takes 10 percent more pounds to by a dollar, 10 percent more pounds to by a car in England because of 10 percent inflation there.

Points for discussion.

a. The difference between a nominal and real exchange rate.

b. The forecasting of forex rates moves is not a science but an art.

c. What approaches in forex forecasting yield good results?

d. What events drive financial markets nowadays?

e. How can central banks influence financial markets?

f. What is the customer guided by in taking forex decisions?