basic fx calculation

8/12/2019 Basic FX Calculation

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Foreign

Exchange


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Forex Jargon

Value date -the date when delivery takes place on a currency

dealSpot date -two business days after deal date

Bid- the rate at which the price maker is willing to buy the

BASE Currency

Offer - the rate at which the price maker is willing to sell the

BASE CurrencySpread -the price makers margin between the bid and offer

price

Direct quote- 1 unit of USD in relation to quoted currency

e.g. USD/JPY = 114.25/75Indirect quote-1 unit of currency other than the USD in

relation to USD e.g. EUR/USD 1.3925/45.

NOTE:The currencies quoted indirectly against the USD are

the EUR,GBP, AUD, NZD. All others are quoted directly.


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Forex JargonRe

ciprocal quote-if USD/HKD = 7.2500 then the reciprocal

rate is 1/7.25 = HKD/USD 0.1379

Forward exchange rate - the rate agreed today for the

exchange of one currency for another at some date in the

future other than spot

Swap -a purchase for value one date with a simultaneous

sale for a different value date(Sale WithAPurchase)

Outright -the purchase or sale of forex for a future value

date

Overnight O/N - rolling out a position from today intotomorrow

tom/next T/N -rolling out a position from tomorrow into the

spot date

Spot Next S/N - rolling out of spot into the next day


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Cross rates

An exchange rate which is derived from twoother quoted exchange rates is called a cross

rate. (The stro nger currency usual ly becomes

the base currency in a cross quote)

EXAMPLE:Deriving a cross rates by using two

dollar based or direct quotes.

Given the following calculate the CHF/HKD

exchange rate:1USD = HKD 7.2500

1USD = CHF 1.5000


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We can deduce mathematically therefore that CHF 1.5000 = HKD 7.2500

To find out how many HKD = 1CHF we need

to divide both sides by 1.5000 (to arrive at1CHF on the left-hand side)

1.5000/1.5000 = 7.2500/1.5000

1CHF = HKD4.8333

or CHF/HKD= 4.8333

There are some simple rules which help!!!

Cross rates


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TWO DIRECT (OR INDIRECT) QUOTESCross and divide(divide high number by lownumber). For example to determine the CHF/HKD given

USD/HKD= 7.2515/7.2545

USD/CHF= 1.5030/1.5050

BID = 7.2515/1.5050 = 4.8183OFFER = 7.2545/1.5030 = 4.8267

CHF/HKD =4.8183/4.8267 (spread is 84 points)

Rules for cross rates


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Cross Rate Exercise

1. Given the following calculate theGBP/HKD exchange rate:

USD/HKD 7.7550/75

GBP/USD 1.8325/35

2. Given the following calculate the

HKD/JPY exchange rate:

USD/HKD 7.7550/75

USD/JPY 114.25/30

basic fx calculation

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