Foreign Exchange And Money Markets / Edition 2

Foreign Exchange And Money Markets / Edition 2

by Heinz Riehl, Rita M. Rodriguez, Rita M. Rodriguez

The authors provide an intimate knowledge of the fundamentals required to cope with the everchanging nature of the money and foreign exchange markets. Its emphasis is on the management of down to earth operations,covering how to read and take advantage of market quotations,the funds manager and the interaction between money and foreign exchange markets,funds… See more details below


The authors provide an intimate knowledge of the fundamentals required to cope with the everchanging nature of the money and foreign exchange markets. Its emphasis is on the management of down to earth operations,covering how to read and take advantage of market quotations,the funds manager and the interaction between money and foreign exchange markets,funds management in a two-way market,problems and solutions in the trading room of a bank,problems and solutions of the multinational non-financial business,returns and risks,in foreign exchange operations,and control of foreign exchange and money market operations. This new edition is updated to account for recent changes and expanded to emphasize and broaden the treatment of money markets.

Product Details

McGraw-Hill Companies, The
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1.19(w) x 6.00(h) x 9.00(d)

Table of Contents

Part 1Foreign Exchange and Money Markets1
1Who's Who in the Markets3
Money market4
What the money market is4
Actors in the money market4
Foreign money market8
Why a Eurodollar market?9
Actors in the foreign money market11
Foreign exchange market11
What the foreign exchange market is11
Actors in the foreign exchange market13
2Interest Rates and Foreign Exchange Rates19
Rates in the money market19
Rates in the foreign money market22
Spread between rates on domestic and Eurocurrency deposits23
Revolving Euroterm loans25
Rates in the foreign exchange market30
Meaning of exchange quotations30
Reciprocal rates31
Cross rates34
The chain35
Price and volume quotations36
3Interactions between the Markets51
The nature of cash flows51
Value dates54
Eligible value dates55
Spot value dates57
Forward value dates57
Interactions between the money and foreign exchange markets59
Operating in the money market61
Operating in the foreign exchange market61
Money market or foreign exchange market66
4Two-Way Markets: Bid and Offer Rates82
Rates in the money market83
Rates in the foreign exchange market84
Meaning of exchange quotations84
Reciprocal rates86
Cross rates87
Some comments on quotations92
How can you evaluate the quality of a quotation?92
Information content of quotations93
5Funds Management in a Two-Way Market101
Swap rates101
What are swap rates?101
Bid and offer in the swap rate103
Swap transactions104
Swap transactions with matched cash flows: Covered interest arbitrage107
Swap transactions with mismatched cash flows109
6Factors Affecting Spot Exchange Rates122
The economics of international transactions123
Trade in merchandise123
Trade in services126
Unilateral transfers126
Capital account126
Official reserves128
Structure of the balance of payments129
The determinants of exchange rates131
The balance of payments approach131
Purchasing power parity132
Market expectations133
International monetary system136
7Factors Affecting Interest Rates140
The level of interest rates140
Supply and demand for funds141
Changes in the money supply141
The shape of the yield curve143
Market expectations144
Other factors146
Creditworthiness and market liquidity148
Part 2Problems and Opportunities in the Treasury Department153
8Operations in the Trading Room155
Basic operations in the market155
Taking advantage of disequilibrium situations: Covered interest arbitrage155
Taking advantage of expected changes in interest rates160
Rolling over a net exchange position165
Catering to customers' needs in the forward market169
Getting out of an exchange position169
Creating a forward exchange market174
Computing the effective yield or cost of funds182
The value of float182
All-in cost of exchange transactions183
Cost of foreign currency deposits184
Central banks' interventions in foreign exchange markets186
How not to do it187
Intervention to achieve domestic objectives189
Intervention to support the spot rate190
9Funds Management in the Exchange Market213
Borrowing and investing without an exchange position214
Raising needed funds in a given currency214
Investing available funds in a given currency214
Another example216
Borrowing and investing with an exchange position219
Managing opposite cash flows in different currencies229
Cash flows take place immediately229
Cash flows will take place in the future231
Funds management under exchange controls236
Investing local funds under capital inflow controls236
Borrowing foreign funds under capital outflow controls238
Currency diversification and liquidity in a portfolio244
10Funds Management in the Money Market259
Money market instruments in the United States260
U.S. Treasury bills and other government securities260
Federal funds261
Certificates of deposit264
Commercial paper268
Repurchase agreements268
Bankers' acceptances270
Futures market for money market instruments272
Money market funds274
Comparing rates in the money market275
Comparing market rates275
Comparing lending rates279
Typical money market operations282
Liquidating an instrument before maturity282
Tail-end gapping (riding the yield curve)283
Spread trading (arbitrage)285
Taking advantage of anticipated changes in interest rate levels288
Hedging interest rate positions290
Cash-flow management and the relationships among financial markets292
11Financing Commercial Transactions297
Hedging the net exchange position created by trade299
Financing trade after sale is realized304
Finacing trade when order is received308
Hedging alternatives in controlled exchange markets313
Cross-currency hedging314
A mutual indemnification agreement315
12Managing Exposure to Exchange Risk327
Exposure: Cash flows versus accounting conventions327
Hedging cash-flow exposures332
Hedging in the forward market334
Hedging in the money market334
Hedging balance-sheet exposures339
Hedging in the financial markets339
Modifying the balance sheet342
Part 3Controlling Treasury Operations351
13Accounting for Treasury Operations353
Accounting for money market operations353
Recording money market transactions353
Measuring profits in money market operations356
Bookkeeping for money market operations361
Accounting for foreign exchange operations364
Recording foreign exchange transactions364
Measuring profits in foreign exchange operations366
Bookkeeping for foreign exchange operations373
Accounting for joint exchange and money market transactions374
Covered interest arbitrage375
Creating a forward exchange market378
Exchange transactions with all-in price quotes379
Loan financing through swaps381
14Risks in Treasury Operations386
Credit risk386
Credit risk in the money market387
Credit risk in the foreign exchange market387
Sovereign risk389
Rate risk389
Rate risk in the money market389
Rate risk in the foreign exchange market390
Liquidity risk391
Liquidity risk in the money market391
Liquidity risk in the foreign exchange market392
Evaluation of comparative risks393
Comparative credit risks396
Comparative rate risks397
Comparative liquidity risks397
Overall assessment398
15Control of Treasury Operations401
Credit risk401
Credit risk in the money market401
Credit risk in the foreign exchange market402
Sovereign risk or cross-border risk404
Rate risk405
Changes in interest rates405
Changes in exchange rates405
Liquidity risk406
The cash-flow report407
The liability-mix report414
Miscellaneous controls417
Aggregate limits417
Protection against fraud418

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