Situation 1

Mr. Ivanov. A Russian bank applied to set up its brokerage office on the Zurich Currency Exchange. You are the vice-president of this bank which is located in Moscow. You are to conduct the negotiations with Mr.Oberman, the vice-president of Swiss bank, type A about the possibility of having membership on the Zurich Currency Exchange.

You have to convince Mr.Obeman that your bank is a reliable and solvent organization. As arguments you describe the business reputation of the shareholders, the reports, made by the international auditors and data concerning credits and foreign currency dealings.

Mr. Oberman. You are not eager to provide a Russian bank with such permission, because only the largest world banks act on the Zurich Currency Exchange. Three foreign banks possess the license type A. Moreover you don’t believe in creditability of Russian banks in the framework of the latest world events. You try to follow the policy of your Government on the restrictions for foreign banks to enter the Zurich Currency Exchange.

Situation 2

Mr.Jonhson. You are a foreign currency dealer with a special license. You have a meeting with Mr. Shulman, a representative of the Swiss Government. He provides the entrance permission for brokers to trade on the Currency Exchange. You should confirm your irreproachable business reputation and prove your professional skills.

Mr. Shulman. You must be convinced of his reliability, because you were informed that the bank, where Mr. Jonhson worked as a broker before, went bankrupt. You stick to the unblemished reputation of a dealer. Following the rule of thumb* you would like to know what role he played in the bankruptcy process of his bank.

*the rule of thumb – (зд.) на основании опыта.

Brainstorming activity

Problem 1

You invest in U.S. dollars currency contracts. You have got the information from your broker that the dollar-against-Euro rate is likely to decrease. At the same time your own adviser gives you a positive forecast concerning the growth of the dollar-against-Euro rate. What would you do?

Problem 2

You are the president of the bank type A and your bank has a seat on the Zurich Currency Exchange. The Board of the Zurich Currency Exchange is about to cancel your trade license. You’ve got a proposal from the president of another bank type A to act on this Exchange through his bank, type B. What would you do?

Final discussion

Preparing for final discussion, try to search for extra information in special editions, magazines and financial text-books. Consult your teachers of special subjects and use the Internet resources. It is recommended to subdivide the group into 3 subgroups for better organization of the discussion.

Questions for discussion:

1. How can you account for the dominant role played by commercial banks on the foreign exchange market?

2. What are the three primary functions of the foreign exchange market?

3. What is from your point of view the most effective way of avoiding foreign currency risk exposure? Support your answer.