Foreign Exchange and Money Markets

The Securities Institute

Formed in 1992 with the support of the Bank of England, the London Stock Exchange, the Financial Services Authority, LIFFE and other leading financial organizations, the Securities Institute is the professional body for practitioners working in securities, investment management, corporate finance, derivatives and related businesses. Their purpose is to set and maintain professional standards through membership, qualifications, training and continuing learning and publications. The Institute promotes excellence in matters of integrity, ethics and competence.

About the series

Butterworth-Heinemann is pleased to be the official Publishing Partner of the Securities Institute with the development of professional level books for: Brokers/Traders; Actuaries; Consultants; Asset Managers; Regulators; Central Bankers; Treasury Officials; Compliance Officers; Legal Departments; Corporate Treasurers; Operations Managers; Portfolio Managers; Investment Bankers; Hedge Fund Managers

Investment Managers; Analysts and Internal Auditors, in the areas of: Portfolio Management; Advanced Investment Management; Investment Management Models; Financial Analysis; Risk Analysis and Management; Capital Markets; Bonds; Gilts; Swaps; Repos; Futures; Options; Foreign Exchange; Treasury Operations

Markets International Ltd

Training and consultancy for the international financial markets Markets International Ltd is an independent company providing training to banks and companies on financial markets and mathematics, risk management techniques, analysis and management policy, credit analysis, technical analysis and other financial subjects.

The company also provides advice to finance directors and treasurers of international companies on foreign exchange, money markets and other treasury matters. This ranges from written studies reviewing existing management policies and procedures to the development of appropriate hedging strategies

Hedging, speculation and arbitrage

Some activity in the financial markets is driven by underlying commercial needs. Companies, banks and individuals borrow money because they need to finance their activities. Conversely, investors with surplus funds need to keep their money somewhere and wish to earn a return on it because otherwise it will dwindle in real value because of inflation.

Through the mechanisms of the financial markets, the investors effectively lend, directly or indirectly to the borrowers. Also, organizations involved internationally need at some point to convert cashflows from one currency to another. Other organizations need to buy or sell commodities because that is an essential part of their business

Spot, forward, value dates and short dates

In general, each type of financial transaction has a normal time-cycle for settlement. For example, if a dealer does a straightforward foreign exchange deal today to buy US dollars and sells euros then, under normal circumstances, he expects that he will receive the dollars and pay the euros not today, but in two business days’ time.

This delay is essentially to allow enough time for the mechanics of the cash transfers involved. In foreign exchange, this is referred to as trading for value spot. Each market has its own normal convention, sometimes for settlement after a delay like this, and sometimes for settlement on the same day as the transaction. In both the foreign exchange and international money markets, for example, the usual convention is spot, as just described. Money market deals in a domestic market, however in the same currency as the market in which they take place (for example, a US dollar deposit in the USA)  are generally settled on the same day as they are transacted

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