5. Answer the following questions based on text a:

1. What is the task of a bank's foreign exchange department?

2. What types of transactions are concluded at foreign exchange markets?

3. What are banking activities in foreign exchange dealings aimed at?

4. What steps are taken when the market rate of a currency in one foreign exchange market deviates too far from the average?

5. Which banks employ foreign exchange dealers?

6. What features of character should a foreign exchange dealer possess?

7. What modern technical devices are foreign exchange markets equipped with? How are they used?

6. Explain following expressions:

a foreign exchange dealer, a big bank, a local bank, to do business on distance, remote control, electronic data processing equipment, an intermediary between the customer and the bank, a profitable transaction, to work together, a spot transaction, forward transaction.

7. Choose the right answer.

1. «To convert into»:

a) to supply, b) to carry out, c) to change into.

2. «To establish a uniform price range»:

a) to set the limits within which the price varies, b) to take advantage of price differences, c) to differentiate prices.

3. «To deviate from the market rate»:

1. to announce new market rates, b) to turn away from the market rate, c) to differ from the market rate.

4. «To restore a balance»:

a) to bring back into a former position, b) to take advantage of price differences, c) to rebuild the economy.

5. «To do business on your own account»:

a) not to cooperate with a team of dealers, b) to settle accounts on your own, c) to do business for one's own profit or advantage.

6. «Dealers must be brought up-to-date»:

a) acquainted with the recent methods of marketing, b) notified immediately about any changes in market rates, c) alarmed by any changes in market rates.

7. «To have a knack of doing two things at a time»:

a) to be able to do two things simultaneously, b) to conduct transaction by telephone or cable, c) to get in touch with two people at a time.

8. «To keep track of»:

a) to use advanced technical equipment, b) to keep in touch with, c) to figure out cross rates.

8. Complete the following sentences in English:

1. Banks specializing in foreign exchange dealings act as an intermediary in the conversion of …

2. A balance in market rates at foreign exchange markets may be restored by …

3. Only the banks dealing in foreign exchange employ …

4. Transactions in which the amount due is paid on the delivery of goods are called …

5. Transactions in which the sum due is to be remitted within the agreed period of time are called …

6. Electronic data processing equipment facilitates …

7. Foreign exchange supply and demand dictate …

8. Arbitrage in foreign exchange dealings takes advantage of …

9. Read and translate Text b using a dictionary

Text B

The central institutions in modern foreign exchange markets are commercial banks with their foreign exchange departments. They routinely keep working balances of foreign currencies with major banks abroad. Transactions affecting a bank's working currency bal­ance (i.e. buying foreign currency, selling of domestic currency to foreign banks, purchase of financial documents, such as bills of ex­change or traveler's checks, that are denominated in foreign curren­cies) are carried out by specialized traders with the aid of telephones, video screens and teletype equipment to keep them in constant touch with other exchange dealers. Foreign exchange dealing is, as its name implies, the exchange of the currency of one country for the currency of another. In an era of floating exchange rates, dealing in foreign exchange can be exceedingly risky. Banks typically employ a wide variety of currency-hedging techniques to help shelter their own and their customer's currency risk exposure. Banks trading in foreign currency are themselves exposed to exchange risks, unless the debts and claims neutralize each other. Dealers continually adjust the bank position* in dollars, yen, pounds and other foreign currencies. They try to avoid both having a long position and being short in any for­eign currency. As long as the total position balances there is no risk for the bank.

The prices of foreign currencies expressed in terms of other currencies are called foreign exchange rates. There are today three markets for foreign exchange: (1) the spot market, which deals in currency for immediate delivery; (2) the forward market, which in­volves the future delivery of foreign currency; and (3) the currency fu­tures market, which deals in contracts to hedge against future changes in foreign exchange rates.

The problem of fluctuating currency values is very serious if payment must be made in future. Settlement for a spot transaction is usually within one or two business days, in contrast, a forward contract is an agreement to de­liver a specified amount at a set price on some future date (known as the value date) within 1, 2, 3, 6 or 12 months.

There are several different ways of measuring and quoting forward exchange rate. One is known as the outright rate. Another popular method is to express the forward rate as a premium or dis­count from the spot rate, known as the swap rate. Forward exchange rates may also be expressed in terms of annualized percentage rate above or below the current spot price.

In the event customers do not know when they will need foreign currency, an option forward contract is frequently used. The re­cent volatility of foreign exchange rates has given rise to an ever-growing volume of new techniques to deal with currency risk. Among such hedging instruments are currency options, currency fu­tures contracts and currency swaps. Innovative new approaches con­tinue to emerge each year.

* to adjust the bank position – закрыть открытую позицию

** to hedge – хеджировать, минимизировать риск