Commercial Transactions The focus in this book is more on commercial transactions—that is, those transactions that involve the buying and selling of foreign exchange to facilitate the trade of goods and services—than it is on financial transactions. Thus GM of Canada may have to convert U.S. dollars into Canadian dollars when parts or components...
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Making the Market “Making the market,” another important use of foreign exchange, refers to transactions between brokers and traders at banks or directly between the traders at different banks. Normally these transactions are undertaken to provide sufficient foreign-exchange balances for the banks to conduct their normal commercial transactions as well as to balance their...
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Arbitrage Arbitrage is the process of buying and selling foreign exchange at a profit due to price discrepancies between markets. For example, one could sell U.S. dollars for Swiss francs, Swiss francs for German marks, and German marks for U.S. dollars, the goal being to end up with more dollars at the end of...
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A major distinction between domestic and international payments for goods and services is that more than one currency is used for international transactions. An exchange rate is the value of one currency in terms of another. A spot exchange rate is the rate quoted for current transactions, whereas the forward rate is a rate...
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Case: The Mexican Peso On August 31,1976, the Mexican peso was cut loose from its exchange rate of 12.5 pesos to the dollar, which was established in 1955. From 1955 to 1976 the exchange rate had been maintained artificially through a variety of mechanisms. Import controls and market intervention were used extensively to allow...
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