Decoding Finance
What is Put Option? Put Option is a contract between two parties under which option buyer gets the right to sell the underlying or original asset (Stock, bond, index, commodity) at pre-determined price (Strike Price) within a specified period. But…
What is Call Option? Call Option is a contract between two parties under which option buyer gets the right to buy the underlying or original asset (Stock, bond, index, commodity) at pre-determined price (Strike Price) within a specified period. But…
What is option Contract? Option is a contract between two parties to buy or sell an underlying asset. This derivative contract provides buyer a right to buy or sell specified quantity of an underlying on or before a specific date…
DISCUSSION AT A GLANCE Meaning- Derivative is a product or contract or instrument, which get its value from the value of an original or underlying asset or group of assets. Use of Derivative- hedging, speculation, arbitrage or leveraging trades Market…
What is International Fisher Effect Theory ? International Fisher Effect theory is combo of two theories, fisher effect and relative Purchasing Power Parity. According to this theory exchange rate differential between two countries over period of time would be approximately…
What is Fisher Effect Theory? Fisher Effect theory is created by economist Irving Fisher. According to this theory real interest rate equal to nominal interest rate minus expected inflation rate but this is an approximate estimation. This theory decomposes nominal…
What is Purchasing Power Parity? The Purchasing Power Parity (PPP) theory connects forex market to commodity market. According to this theory exchange rate between two currencies of two country depends upon purchasing power to buy same basket of goods in…
What is Interest Rate Parity? Interest rate parity is a no-arbitrage condition. In simple word an investor will not be allowed to gain a riskless return by borrowing at lower rate in one country and investing at high rate in…
Nostro Account: – Conversion of foreign currency in to home currency is the fundamental of foreign exchange. Therefore, the bank which is authorised to deal in foreign exchange, to stream line the exchange process, keep stock of foreign currency. For…
Exchange Margin is the amount that bank charge when you buy or sell foreign currency to the Bank. For better understanding of this concept you have to recall the concept of Inter-Bank Market and Retail Market. An importer or exporter…