Foreign Exchange Markets
Foreign Exchange Markets
Foreword
Introduction
A Brief History of the FX Market’s Evolution
Foreign Exchange Markets
Predicting FX Movement
Basic FX Instruments
Trading Floor Dynamics
FX Options: An Intuitive Approach
Famous Formulas, Fame and Fortune
Getting to the Formula and the Correct Probability Distribution
The Greeks – A Practical Approach
Portfolio Management and Second-order Greeks
FX Options Trading Book & Risk Measurement
Hedging FX Risk at Corporations
You Have Options
Situations Gone Mad, From the Most Complex to the Simplest
Speculators and Hedge Funds: How Do Portfolio Managers Make Money?
Speculating and Hedging: The Fundamental Differences
Epilogue
For those not involved in the FX market, it must be very difficult to get a palpable sense of what it is. Exchanging one currency for another happens when you go to the bank or the automated teller machine (ATM) and exchange money for your vacation; it happens on the second floor of some shopping mall in Singapore by some guy in a kiosk – no computer, and he makes a tighter price than JPMorgan; it happens on the fancier streets of Buenos Aires, where every five steps someone is yelling “cambio”; it happens when IBM sells its artificial intelligence (AI) services to a Chinese municipality; and it happens when the Federal Reserve Bank buys and sells currency to manipulate FX rates and implement interest rate policy.
FX is both omnipresent and a self-perpetuating creation. Although it permeates every aspect of global interactions, the heart of the system is really a market concentrated into a few major players, located in a few central locations and trading just a handful of currencies. In this chapter, we will explore who trades FX, where it happens, how big the market is, and look at just a few of the conventions and traditions. Some of these qualities have led to behaviour that
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