The Foreign Exchange Market

Edward E. Ghartey ()
Additional contact information
Edward E. Ghartey: The University of the West Indies

Chapter Chapter 3 in International Macroeconomics and Finance, 2025, pp 31-51 from Springer

Abstract: Abstract In this chapter, we have discussed the foreign exchange market (FEM) where transactors of foreign exchange or currencies, mainly central banks, which are national banks, commercial banks, nonbanking financial institutions, such as cambios or foreign exchange brokers, corporations, exporters, importers, and tourists conduct businesses with national and vehicle currency or reserve currency. We have explained concepts such as foreign currency, foreign exchange trading, spot rate, forward rate, arbitrage, seigniorage, real exchange rate, nominal effective exchange rate (NEXR), forward contracts, futures, option contracts, speculation, hedging, forward discount, and premium. We have worked through examples and used illustrations to explain and elucidate arbitrage trading, hedging, speculation, to name a few, and solved problems relating to foreign exchange risk, currency swap, covered interest arbitrage margin, and parity. Furthermore, we have also explained types of foreign exchange risks, and how hedging and currency swaps can be used to minimize foreign exchange risk. We have explained terms such as long position, short position, and how they can be employed by investors and traders to make profit or minimize losses, and to either destabilize or stabilize the foreign exchange market. We ended the Chapter with a discussion of the effect of taxes on covered interest arbitrage margin, when income taxes are not equal to capital gain taxes.

Date: 2025
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-032-04145-6_3

Ordering information: This item can be ordered from
http://www.springer.com/9783032041456

DOI: 10.1007/978-3-032-04145-6_3

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().