408 entries
Foreign exchange
Currency pairs, exchange-rate regimes, FX derivatives, intervention, the major reserve currencies.
- FX Swap An FX swap is a simultaneous purchase and sale of a currency at two different rates and dates. A company buys currency spot and sells it forward, locking in an interest-rate cost. FX swaps are used for short-term hedging and funding.
- FX Swap Implied Yield Calculation The forward points in an FX swap encode an implied yield spread, derived from the interest-rate differential between two currencies.
- FX Swap vs FX Forward: What Is the Difference? FX swap vs FX forward: an FX swap exchanges currency twice (in opposite directions); a forward is a single settlement. Both lock in future exchange rates but serve different liquidity and term needs.
- FX Swaption Option to enter a cross-currency swap at a predetermined rate; hedges long-term funding and exposure mismatches across currencies.
- FX Variance Swap An OTC derivative that transfers realised FX volatility risk from one party to another, settling on the difference between realised and implied variance.
- FX Volatility Smile Curve Pattern where implied volatility across currency option strikes forms a U-shaped curve, with higher volatility at out-of-the-money strikes.
- FX Volatility Surface An FX volatility surface is a 3D plot of implied volatility across strikes and maturities for a currency pair. It shows how the market prices different options and reveals expectations about future volatility and the probability of tail events.
- FX Volatility Surface Construction Explained FX volatility surface construction maps market-quoted volatility across strikes and tenors. Dealers build 2-D surfaces from ATM, risk reversals, and butterfly quotes to price vanilla and exotic options.
- FX Window Barrier Option A barrier option where the knock-in or knock-out level is only monitored during specified observation windows rather than continuously.
- GBP/JPY: Sterling–Yen Volatility Characteristics GBP/JPY is a volatile G10 cross pair driven by Bank of England hawkishness, Japanese carry-trade unwinds, and elevated daily swings.
- GBP/USD Sterling The British pound to US dollar exchange rate, one of the oldest and most traded currency pairs—a benchmark for UK economic health and sterling strength versus the world's reserve currency.
- Give-Up in FX The process by which a prime broker or intermediary transfers an executed FX trade to the ultimate counterparty dealer after execution.
- Gold Exchange Standard A currency regime where central banks hold gold-convertible reserve currencies rather than gold itself as monetary backing.
- Gold Standard The gold standard was a monetary system in which a country's currency was backed by and freely convertible into gold at a fixed rate. Most countries abandoned it during the Great Depression; it ended for the US in 1971.
- Gold Standard vs Gold Exchange Standard: Key Differences The gold standard let currencies convert directly to gold; the gold exchange standard relied on foreign reserves. Learn why the latter fractured the system.
- Gold vs Foreign Exchange Reserves Compare gold vs foreign exchange reserves in central bank holdings: liquidity, risk, and why most reserve portfolios hold both.
- Hard Peg A hard peg is a currency peg so credibly committed that markets have no doubt the central bank will defend it at any cost. The Hong Kong dollar at 7.80 per US dollar and the Argentine peso at 1:1 (until 2001) are famous examples.
- Hard Peg vs Soft Peg Exchange rate regimes: hard pegs fix the currency at one rate, soft pegs allow a narrow band. Which breaks under pressure, and when?
- Hedging Currency Risk with a Forward Contract Learn how exporters use forward contracts to lock in exchange rates and eliminate currency risk on future foreign-currency receivables.
- Historical Examples of Reserve Currency Loss How reserve currencies like sterling and the Dutch guilder lost dominance and what patterns emerge from their decline.
- Hong Kong Dollar Currency board system pegging the Hong Kong dollar to the US dollar, with automatic intervention and capital controls provisions.
- How a Crawling Peg Rate Is Set and Adjusted A crawling peg rate is determined by a fixed initial level and periodic adjustments using inflation or depreciation formulas, balancing stability with gradual devaluation.
- How a Currency Becomes a Reserve Currency The economic, institutional, and geopolitical conditions that allow a nation's currency to become widely held as a reserve asset by foreign central banks.
- How a Currency Peg Collapses A currency peg collapses when a central bank depletes foreign reserves defending a fixed exchange rate, forcing devaluation and ending the peg.
- How Aggregated Liquidity Achieves Best Execution in FX Aggregated liquidity in forex allows ECN platforms to pull quotes from multiple providers simultaneously and route each order to the tightest available price.
- How Brokers Mark Up the Forex Spread How retail forex brokers widen the interbank spread before passing it to clients, the economics behind the markup, and how to estimate effective costs.
- How Central Bank FX Intervention Works Step by Step Central bank currency intervention: the operational sequence from internal authorization to settlement when entering the spot market to buy or sell its own currency.
- How Central Banks Communicate FX Intervention How central banks communicate FX intervention through press releases, forward guidance, and coordinated rhetoric to influence currency markets.
- How Central Banks Hold Foreign Reserves Explore the assets central banks use to store foreign reserves—government bonds, deposits, gold, and Special Drawing Rights—and why each instrument is chosen.
- How Central Banks Manage Foreign Exchange Reserves Central banks manage foreign exchange reserves to ensure liquidity, preserve capital safety, and generate modest returns; holdings typically include T-bills, bonds, and gold.
- How Currency Intervention Affects Carry Trades Understand how FX intervention squeezes carry-trade positions and why traders adjust strategy when central bank buying risk is elevated.
- How Currency Pair Correlations Change During a Financial Crisis Why uncorrelated currency pairs move together in risk-off crises; implications for hedging multi-pair positions.
- How Currency Pair Spreads Widen During News Events Understand why bid-ask spreads spike on currency pairs during economic releases and how traders can estimate and manage spread widening costs.
- How Daily Currency Fixing Rates Are Set How daily currency fixing rates are set: sampling, calculation windows, and why corporations use benchmark fixes for revaluation and settlement.
- How Forex Rollover Interest Works Forex rollover interest is a daily charge or credit based on the interest rate differential between two currencies. Learn how overnight positions are settled.
- How Forward Market Intervention Works Explaining how central banks use FX forward contracts and non-deliverable forwards to influence spot rates without immediately drawing down reserves.
- How FX Forward Points Are Calculated Step-by-step formula for converting a spot exchange rate into a forward rate using interest-rate differentials between two currencies.
- How FX Rollovers Are Calculated on Open Positions The arithmetic behind FX overnight rollover charges and credits, tied to interest-rate differentials and swap points between currency pairs.
- How Interest Rate Differentials Drive Currency Pairs How interest rate differentials between central banks move currency pairs through capital flows, carry trades, and expectation channels.
- How Long Does a Reserve Currency Transition Take? Reserve currency transitions measured in decades, not years—the shift from sterling to dollar took 30+ years, guilder to sterling even longer. Historical patterns matter.
- How Negative Rates Were Used Alongside FX Intervention The Swiss National Bank combined deeply negative interest rates with direct forex intervention to weaken the Swiss franc—a dual-lever strategy tested at the zero bound.
- How Oil Prices Affect USD/CAD and Other Oil-Linked Pairs Oil prices and the Canadian dollar move in tandem because Canada exports crude. Learn the mechanism, data on oil price impact on USD/CAD currency pair, and which other currencies move with oil.
- How Pegged Currency Pairs Work How pegged currency pairs work: intervention bands, reserve management, and the mechanics of hard pegs versus managed floats.
- How Reserve Currency Status Exports Inflation The mechanism by which monetary expansion in a reserve currency nation can transmit inflationary pressure to foreign economies holding its currency.
- How Sanctions Affect Reserve Currency Status When countries face sanctions, their currency's role as a reserve asset erodes. Examine how freezing reserves and SWIFT exclusion undermine trust in a reserve currency.
- How Sanctions Freeze Central Bank Reserves When a reserve-issuing country imposes sanctions, it can immobilize foreign central bank assets held in its financial system by blocking access and transfers. This freezes reserves permanently.
- How Stop-Loss Orders Work in Forex Mechanics of stop orders in FX: how they convert to market orders once triggered, gap-fill risk, and how brokers handle stops during illiquid periods.
- How to Calculate the True Transaction Cost of a Currency Pair Calculate forex transaction costs by converting bid–ask spreads to pips, adding commissions, and including holding costs like rollover swaps for multi-day positions.
- IMF Rules on Currency Intervention IMF rules on currency intervention constrain how members can act in FX markets under Article IV obligations and the 2022 Integrated Policy Framework.
- Impossible Trinity The principle that a country cannot simultaneously maintain a fixed exchange rate, free capital flows, and an independent monetary policy.
- Impossible Trinity Policy Tradeoffs: Real-World Examples The impossible trinity shows why central banks cannot simultaneously maintain a fixed exchange rate, open capital flows, and independent monetary policy. Real cases: Hong Kong, China, and the US.
- Indian Rupee India's currency, an emerging-market currency that reflects the country's economic growth, inflation trends, and capital flows.
- Indirect Quote An exchange rate expressed as foreign currency units per one unit of domestic currency, common in non-USD pairs.
- Interbank FX Market The wholesale tier where large banks trade currencies directly with each other at tighter rates and spreads than retail clients see.
- Interest Rate Parity A relationship between spot and forward exchange rates and interest rates in two currencies, ensuring no arbitrage profit from interest-rate differentials.
- Intervention Band vs Crawling Peg: Key Differences Understand intervention bands and crawling pegs — two distinct regimes for managing currency values, each with different flexibility, adjustment rules, and central bank behavior.
- Inverse Currency Pair The reciprocal of a direct currency quote; the arithmetic relationship between USD/EUR and EUR/USD, and how traders select between direct and inverse quotes.
- Japanese Yen The Japanese yen is the currency of Japan and a major reserve currency. It is a safe-haven currency appreciated during crises and often used as a funding currency in carry trades due to low interest rates.
- Knock-In vs Knock-Out FX Options: Key Differences How barrier options activate or deactivate based on exchange-rate thresholds, creating opposite risk profiles and lower premiums than vanilla options.
- Korean Won The KRW's role as an emerging reserve currency shaped by South Korea's export competitiveness, capital controls, and geopolitical ties to the US.
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