Exchange RateWenmin wang

Agenda

• Exchange Rate

• Hedge

• Triangle Arbitrage

• Conclusion

What is Exchange rate?

• A pair of shoes

• USD JPY

1. $80 ¥81,000

2. $80 ¥79,000

Equilibrium:

$80 ¥80,000

What is Exchange rate?

The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another.

Why exchange rate?

To keep the buying or purchasing power of buyers the same all over the world

How Does Exchange rate Influence our daily life?

Importing and exporting

Employment rate

Domestic price of commodities

Study and travel abroad

Exchange Rates

Direct Rate

Indirect Rate

Cross-Rate

Hedge

Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.

Forex Hedge

- Spot Contracts

- Foreign Currency Options

Triangular Arbitrage of Exchange Rates

the act of exploiting an arbitrage opportunity resulting from a pricing discrepancy among three different currencies in the foreign exchange market

Triangular Arbitrage of Exchange Rates Calculation

Step 1. Draw a triangle

Step 2. Identify the cross rate

Step 3. Find the Implied Cross Rate

Step4. Comparing the two Cross Rate

Step 5. Identify Arbitrage possibility

Step 6. Calculate Arbitrage Profit

Triangular Arbitrage of Exchange Rates

Example:

Bank A: ¥82/$

Bank B: $1.6/£

Bank C ¥128/£

Is there any arbitrage opportunity?

If yes, provide you ¥100,000,000 yen, how much arbitrage profit can you get?

Conclusion

Exchange rate the rate at which one currency can be exchanged for another

Hedge is making an investment to reduce the risk of adverse price movements in an asset

Triangle Arbitrage of Exchange Rates

Reference

http://www.yoube.com/watch?v=lKu2LAgEcpUut

http://www.xe.com/

http://www.investopedia.com/ask/answers/forex/forex-hedge-and-currency-hedging-strategy.asp

http://zhpan.com.cn/w/?l=cn&query=%CB%BF%CD%C8%CB%AE%BE%A7%D0%AC

http://blogs.swa-jkt.com/swa/anthonytrickey/tag/exchange-rate-calcualtions/

http://blogs.roanoke.com/shoptimist/2013/06/whats-your-favorite-dollar-store/

Any Questions?