Foreign Exchange Exposure
Meaning The term foreign exchange exposure is relevant for the companies involved in import or export of goods or services, or having transactions denominated in foreign currency. If…
FINANCE CRACKER
Decoding Finance
Category Foreign Exchange
International Arbitrage
Meaning of International Arbitrage International Arbitrage is the process of selling and buying foreign securities and ADRs simultaneously to take advantage of imperfect pricing in different international markets. …
Triangular Arbitrage or Three Point Arbitrage
What is Triangular Arbitrage? Triangular Arbitrage is the result of mis-match of exchange rate of three currencies. Under this mechanism arbitrageur takes advantage of discrepancy among three different…
Two Point Arbitrage
Meaning of Two Point Arbitrage Buying a currency in one market and selling it at higher price in another geographically different market is called two-point arbitrage. Normally exchange…
COVERED INTEREST ARBITRAGE
MEANING OF COVERED INTEREST ARBITRAGE Under Covered Interest Arbitrage (CIA) arbitrageur takes the advantage of interest rate differential between two countries by hedging himself under forward contract to…
International Fisher Effect
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…
Fisher Effects
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…
Purchasing Power Parity
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…
Interest Rate Parity
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…
NOSTRO, VOSTRO AND LORO ACCOUNT
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,…