Why Is Foreign Exchange so Important?
Called one of the most liquid markets in the world, the foreign exchange or foreign currency markets transact trillions of dollars a day across the globe. Foreign exchange, or FX as it is often referred, is generally divided into major and minor currencies, and include the spot, forward, and option markets. Foreign exchange is used to trade, invest, raise capital, and hedge.
Introduction to Foreign Exchange Course
Our Spot and Forward Foreign Exchange Course examines the fundamentals of foreign exchange, as well as the features, characteristics, applications, basics of pricing, and risks. Applications are explored for the main products, including spot, forwards, and options, as well as a wide variety of applications from different end-users vantage points, including banks, asset managers, institutional investors and speculators.
Introduction to Foreign Exchange Course Overview
By the end of the course, the participants will be able to:
- Describe the features and characteristics of spot and forward Foreign Exchange (FX)
- Explain the role of a market maker and end user
- Demonstrate how to price forward FX
- Apply forward FX from different client perspectives
- Discuss impact on FX from the credit crisis
- Explain and apply FX Options
This foreign exchange course is taught in four sessions:
- Session 1: Foreign Exchange describes the features and characteristics of the spot FX market and the variables that impact FX rates. The base and counter/quoted currency is determined, as well as the differences between big figures and pips. Cross rates will be explained and FX terminology will be covered. This session concludes with a discussion on risk management and spot trading limits.
- By the end of Session 2: Forward Foreign Exchange, participants will be able to identify the components of a forward FX transaction, and describe and calculate the forward rate through the spot market and money market deposits. Points, premiums, and discounts will be discussed, as well as how a forward contract is quoted. Participants will also be able to calculate a forward rate from the spot rate and points. How end users apply forward FX will be illustrated and participants will be able to describe the features and characteristics of non-deliverable forwards.
- After Session 3: FX Swaps, course participants will be able to describe the structure and mechanics of an FX swap, and differentiate between an outright and a swap. They will also be able to outline how FX swaps are used in place of deposits to hedge an FX outright, determine the advantages of using FX Swaps and recognize how an FX trader earns a profit.
- The final session of the course, Session 4: Introduction to FX Options, will define calls and puts for participants, as well as different quoting methods. Participants will learn how to analyze basic applications, discuss ISDA® documentation, and view payoff profiles of the respective options.