danielle hultquist—from sweden bin liu– from china march 11, 2009

22
Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

Upload: piers-rodgers

Post on 12-Jan-2016

215 views

Category:

Documents


1 download

TRANSCRIPT

Page 1: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

Danielle Hultquist—from Sweden

Bin Liu– from China March 11, 2009

Page 2: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

History about Currency

Basic Knowledge about Currency Exchange

Why Different Exchange Rates?

Historical Movements in Exchange Rates

Risks Related to Foreign Exchange

Arbitrage

Currency Exchange Investment

Page 3: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

5 tribes

5 basic goods-Fish, Bread, Pork, Egg, Firewood

5 different needs

Page 4: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

Barter – Trade without money◦ Game

The Ancient Sumerians ◦ 3500 BC

First paper money◦ 10th century China

Page 5: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

What is foreign exchange rate?

Direct Quote vs. Indirect Quote

American Terms vs. European Terms

U.S. dollar as the base currency

Page 6: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

(http://www.x-rates.com/)

Page 7: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

World Money System-historical

Purchasing Power Parity (PPP)

Page 8: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

School of Salamanca- 16th century Spain◦ Equivalent coins traded at different rates ◦ PPP

The Swedish Riksbank – 18th century◦ Daler bank notes

Gold Standard◦ Currency convertible into pre-set, fixed

quantities of gold

Page 9: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

The Swedish Riksbank – 18th century

Page 10: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

WWI & WWII◦ Disorder in international finance

Bretton Woods◦ July 1944◦ Agreement: Fixed exchange rates, quotation on

gold or US dollars◦ Breakdown

Floating exchange rates and imbalance

Page 11: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

Historical Movements cont’d

Page 12: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

World Money System-historical Purchasing Power Parity (PPP)The Law of One Price: the theory states that, in

ideally efficient markets, identical goods should have only one price.

Different Exchange Rate

Appreciation & Depreciation

Big Mac!

Page 13: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

(http://www.economist.com/markets/indicators/displaystory.cfm?story_id=13055650)

Page 14: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

Interest rate risk

Country risk

Exchange rate riskAdverse movements in exchange rates

Page 15: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

Triangular arbitrage

Cross-rate

An example: Condition: Starting: US$10,000 CD$1.24/US$1.00

AU$1.53/US$1.00 AU$1.23/CA1.00

CD$/US$*AU$/CD$≠AU$/US$1.24*1.23=1.5252<1.5353

How to make money?

Page 16: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

1. Buy Australian dollars with US dollars: US$10,000*(AU$1.53/US$1)=AU$15,300

2. Buy Canadian dollars with Australian dollars:

AU$15,300/(AU$1.23/CD$1)=CD$12,439

3. Buy US dollars with Canadian dollars: CD$12,439/(CD$1.24/US$1)=US$10,031

Page 17: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009
Page 18: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

Dealers --large international banks and other financial institutions

No organized exchange --linked

Brokers: facilitate most of the transactions

Necessary information: daily periodicals & services

In general: http://www.youtube.com/watch?v=CD52pBu93gY&feature=related

Page 19: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

Why do we need currency?

How currencies are quoted?

Why are there different exchange rates?

Historical movements through time

What are the risks with currency exchange?

What’s arbitrage?

How to invest in currency?

Page 20: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009
Page 21: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009
Page 22: Danielle Hultquist—from Sweden Bin Liu– from China March 11, 2009

Sincerely,Danielle HultquistBin Liu