Currency convertibility is the ability of a currency to be converted into another currency. This can be done through currency exchange or through the use of currency swaps. What is a blocked currency? A blocked currency is a currency that is not freely convertible into other currencies, and is therefore “blocked” from international trade. This … Read more
Currency arbitrage is the act of simultaneously buying and selling different currency pairs in order to take advantage of differing exchange rates. For example, if the EUR/USD exchange rate is 1.20 and the USD/JPY exchange rate is 80, a trader could buy EUR/USD and sell USD/JPY, pocketing the difference in the two exchange rates. Arbitrage … Read more
A currency swap is an agreement between two parties to exchange a given amount of one currency for another currency at a predetermined rate for a specified period of time. Swaps can be used to hedge against currency risk or to speculate on currency movements. There are two types of currency swaps: -Fixed for floating: … Read more
A natural hedge is a way of reducing risk by using a financial instrument that offsets exposure to an opposing position. This can be done by taking opposite positions in the same security or by investing in securities that move inversely to the original investment. A natural hedge can also be created by using derivatives … Read more
The WM/Reuters Benchmark Rates Definition is a set of rates that are used as a benchmark for pricing various financial instruments. The rates are provided by the World Markets / Reuters company and are based on a variety of factors, including global currency markets, interest rates, and economic data. What are benchmark rates? A benchmark … Read more
A forward exchange contract (FEC) is an agreement between two parties to buy or sell a specified amount of a foreign currency at a fixed price for delivery at a specified future date. FECs are used to hedge against currency risk or to take advantage of expected changes in the exchange rate. FECs are traded … Read more
The Beggar-Thy-Neighbor Definition is an economic theory that suggests that one country can improve its own economic conditions by harming the economic conditions of its trading partners. The theory is based on the idea that trade is a zero-sum game, and that if one country gains, the other country must lose. The theory was first … Read more
A crawling peg is a type of exchange rate regime in which a currency’s value is allowed to fluctuate within a predetermined band in relation to another currency. The band is often based on a fixed percentage of the currency’s value, and the rate is allowed to move up or down within the band according … Read more
Triangular arbitrage is a trading strategy that takes advantage of discrepancies in currency exchange rates. It involves converting one currency into another, then using the second currency to buy a third currency, and finally converting the third currency back into the first currency. The aim is to exploit any differences in the exchange rates of … Read more
Forex arbitrage is a trading strategy that seeks to profit from discrepancies in the prices of identical or similar financial instruments. The strategy involves the simultaneous purchase and sale of assets in order to take advantage of price differences in different markets. Arbitrageurs aim to profit from temporary imbalances in the price of a security. … Read more
