foreign exchange

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foreign exchange

foreign exchange, methods and instruments used to adjust the payment of debts between two nations that employ different currency systems. A nation's balance of payments has an important effect on the exchange rate of its currency. Bills of exchange, drafts, checks, and telegraphic orders are the principal means of payment in international transactions. The rate of exchange is the price in local currency of one unit of foreign currency and is determined by the relative supply and demand of the currencies in the foreign exchange market. Buying or selling foreign currency in order to profit from sudden changes in the rate of exchange is known as arbitrage. The chief demand for foreign exchange within a country comes from importers of foreign goods, purchasers of foreign securities, government agencies purchasing goods and services abroad, and travelers. Exchange rates were traditionally fixed under the gold standard and later by international agreements, but in 1973 the major industrial nations of the West adopted a system of “floating” rates that allowed for fluctuation within a limited range. The currencies of Western nations are generally allowed to fluctuate freely, although central banks will intervene in the foreign exchange markets in an attempt to control excessive or undesirable appreciation or depreciation.

Bibliography

See S. W. Arndt et al., ed., Exchange Rates, Trade and the U.S. Economy (1985); N. Abuaf and S. Schoess, Foreign-Exchange Exposure Management (1988).

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References in periodicals archive ?
So if the Fed hoped to lower long-term rates by buying long-term securities without somehow lowering investors' expectations about future interest rates, arbitragers would simply do the opposite --that is, buy short-term securities and sell long-term securities--and the yield curve would not change.
For instance, dark pools such as Liquidnet developed specifically with the goal of allowing large anonymous trades without tipping off high frequency arbitragers that a big order is in the market and moving prices.
Also, the write-in comments suggest the more research is needed in areas regarding costs and advantages of regulatory compliance in domestic versus foreign markets, the emphasis toward cash flow reporting, and the impact of different types of ownership concentration (employee, institutional, arbitragers, insiders, and managers).
if FA > A / 1 + [sup.i]uk S(1 + [sup.i]NG) he will hedge as an arbitrager and hedging options open to both the exporter and importer is shown below:
The various market forms and the economic assumptions are helpful to understand market behavior and are critical for market participants called arbitragers. An arbitrager is a trader who will attempt to take advantage of market imperfections in order to capture a profit.
Any arbitrager could buy clothes, say, in Portugal and sell them in Germany.
Her husband might as well be a budding arbitrager, or a real estate lawyer; and Alec Baldwin, as Frankie, doesn't play up the thuggish side of the character.
And few people will see in the film, as Lipper purports to, "the premise that Wall Street has a critical and necessary function and that it has an ability to heal itself." As far as I can discern, the Street performs no function in this story other than that of making money for itself; apart from the arguable example of the Holbrook character, we are not introduced to a single Wall Street denizen-- broker, lawyer, arbitrager or takeover artist--who shows the least interest in capital formation, research and development, maintenance of plant and equipment or any of the other laudatory purposes presumably served by the modern stock market.
Boesky was a little harder to detach from The New Republic.After all, had not Martin Peretz written an ode to the arbitrager in the March 25, 1985, issue and called it "Productive Predators'?
In principle, arbitragers could buy puts whilst selling equity, but transaction costs and calculation costs (imprecisions) would be considerable.
Results show that market fragmentation and the existence of latency arbitragers negatively impact liquidity and total surplus within the system.