6. Summarize the information of the unit and speak on the topic: The Stock Exchange, Bonds

Unit 8 The Foreign Exchange Market

Any country’s currency is a legal tender only within its national boundaries. The trade beyond these boundaries involves exchange of currencies. They can be bought and sold in the Foreign Exchange Market, which performs two major functions: it facilitates the foreign exchange needs of exporters and importers, and it enables individuals, corporations and governments to obtain a desired currency mix of their portfolios.

Trading in the market occurs 24 hours a day in various centers around the world. Deals are concluded over telecommunication network by different counterparties, some of whom work as dealers.

The exchange market is global, it doesn’t have one centralized location. The great majority of trading takes place between those who represent large commercial banks or other financial institutions. Foreign exchange departments of banks are linked across the world through a sophisticated network of communication system.

The market consists of three major sectors: the spot market, the futures market and the currency options market.

More than half of all transactions are spot deals. In other words, they are transactions that are settled within two business days.

Trading may occur at any future day. This transaction results in a futures contract. The businessman who signs a contract for the future delivery of machines may wish to settle the cost in his own currency immediately by signing a futures contract with his bank (he hedges his position). No matter what happens to the fluctuation in the foreign exchange rate between now and the settlement day, the businessman’s exchange rate is set.

In the currency option markets a company or a bank can buy the right, but not the obligation, to sell or buy currency forward, if required. This option, to decide whether to buy or sell currency, is particularly important when the firm is unsure about the timing or size of foreign currency receipts or payment. To purchase an option, the buyer has to pay a premium.

Prices in the exchange market depend on the volume of transactions, exchange rate volatility, the availability of relevant information and the strength of competition in the market. The basic idea of foreign exchange dealing is making profit on selling and buying currencies. Dealers and brokers usually quote not one, but two exchange rates for each pair of currencies: a bid (buy) price and an asked (sell) price. The bid-asked spread constitutes the dealer’s profit, though this spread is normally very small. As prices are different in different countries, professional dealers take advantage of it buying, say, US dollars for yen in Singapore and selling them in London for sterling and then back into yen in New-York – all for a profit. This operation is called currency arbitrage.

The delivery of the individual currencies involved in a foreign exchange transaction typically takes place through the payment systems of the two countries whose currencies are traded.

boundary (n) - граница

currency mix - структура денежной массы

counterparty (n) - сторона при заключении сделки

spot market - рынок наличной валюты (на котором сделки совершаются в течение двух дней)

futures market - фьючерский рынок (срочных сделок – договоров о покупке или продаже фиксированного количества определенного товара, валюты или ценных бумаг для их поставки в оговоренную дату в будущем по согласованной цене)

options market - рынок опционов (разновидностей срочных сделок, которые необязательно выполнять)

hedge (v) - страховать себя от возможных потерь

fluctuation (n) - качание, колебание

obligation (n) - обязательство

to undertake obligations, assume obligations - принимать обязательства

to feel an obligation - чувствовать себя обязанным

to fulfill, meet an obligation - выполнять, исполнять долг

e.g.We have an obligation to help them. - Мы обязаны им помогать.

volatility (n) - изменчивость, непостоянство

quote (v) - котировать, назначать цену

quotation (n) - котировка

asked quotation - курс продавца

bid quotation - курс покупателя

spread (n) - разница, маржа

to narrow the spread - сократить разрыв в ценах

to profit from the spread -получить прибыль от разрыва в ценах

relevant (adj) - релевантный; значимый; существенный; важный

currency arbitrage - скупка и продажа валют, учитывающая разность курсов разных валют на различных валютных рынках