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- Transferring purchasing power between countries.

- Obtain or prove credit for international trade transactions

- Minimise exposure to the risks of exchange rate changes.

- Bank and non-bank FX dealers (make a market)

- Individuals and firms conducting commercial or investment transactions

- Speculators and arbitragers (buy and sell for profit)

- Central banks and treasuries

- FX brokers (shop the market)

Purchase of FX, with delivery and payment between banks to take place (usually) the 2nd following business day.

Delivery at a future value date of a specified amount of one currency for a specified amount of another currency.

Exchange rate is established at time of contract, with payment and delivery at maturity.

Simultaneous purchase and sale of a given amount of foreign exchange for two different value dates.

Buying euros forward for dollars.

Selling dollars forward for euros.

• A dealer sells £20,000,000 forward for dollars for delivery in, say, two months at $1.8420/£
• and simultaneously buys £20,000,000 forward for delivery in three months at $1.8400/£. The difference between the buying price and the selling price is equivalent to the interest rate differential, between the two currencies. Thus, a swap can be viewed as a technique for borrowing another currency on a fully collateralized basis.

Are settled only in U.S. dollars; the foreign currency being sold forward or bought forward is not delivered.

CUR1 = Base (home) currency

CUR2 = Price (quote) currency

Base currency = USD

USD/EUR 0.82

Exception is EUR and GBP - quoted in American terms.

AUD and NZD are also normally quoted on American terms.

Price currency = USD

EUR/USD 1.2

Direct - the price of a foreign currency in domestic currency units. (AUS = AUS/USD 0.80)

Indirect - the price of the domestic currency in foreign currency units. (AUS = USD/AUS 1.2)

Interbank Market

Client Market