Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.
-
Upload
johnathan-wright -
Category
Documents
-
view
215 -
download
0
Transcript of Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.
![Page 1: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/1.jpg)
Exchange RateWenmin wang
![Page 2: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/2.jpg)
Agenda
• Exchange Rate
• Hedge
• Triangle Arbitrage
• Conclusion
![Page 3: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/3.jpg)
What is Exchange rate?
• A pair of shoes
• USD JPY
1. $80 ¥81,000
2. $80 ¥79,000
Equilibrium:
$80 ¥80,000
![Page 4: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/4.jpg)
What is Exchange rate?
The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another.
![Page 5: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/5.jpg)
Why exchange rate?
To keep the buying or purchasing power of buyers the same all over the world
![Page 6: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/6.jpg)
How Does Exchange rate Influence our daily life?
Importing and exporting
Employment rate
Domestic price of commodities
Study and travel abroad
![Page 7: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/7.jpg)
Exchange Rates
Direct Rate
Indirect Rate
Cross-Rate
![Page 8: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/8.jpg)
Hedge
Making an investment to reduce the risk of adverse price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related security, such as a futures contract.
Forex Hedge
- Spot Contracts
- Foreign Currency Options
![Page 9: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/9.jpg)
Triangular Arbitrage of Exchange Rates
the act of exploiting an arbitrage opportunity resulting from a pricing discrepancy among three different currencies in the foreign exchange market
![Page 10: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/10.jpg)
Triangular Arbitrage of Exchange Rates Calculation
Step 1. Draw a triangle
Step 2. Identify the cross rate
Step 3. Find the Implied Cross Rate
Step4. Comparing the two Cross Rate
Step 5. Identify Arbitrage possibility
Step 6. Calculate Arbitrage Profit
![Page 11: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/11.jpg)
Triangular Arbitrage of Exchange Rates
Example:
Bank A: ¥82/$
Bank B: $1.6/£
Bank C ¥128/£
Is there any arbitrage opportunity?
If yes, provide you ¥100,000,000 yen, how much arbitrage profit can you get?
![Page 12: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/12.jpg)
Conclusion
Exchange rate the rate at which one currency can be exchanged for another
Hedge is making an investment to reduce the risk of adverse price movements in an asset
Triangle Arbitrage of Exchange Rates
![Page 13: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/13.jpg)
Reference
http://www.yoube.com/watch?v=lKu2LAgEcpUut
http://www.xe.com/
http://www.investopedia.com/ask/answers/forex/forex-hedge-and-currency-hedging-strategy.asp
http://zhpan.com.cn/w/?l=cn&query=%CB%BF%CD%C8%CB%AE%BE%A7%D0%AC
http://blogs.swa-jkt.com/swa/anthonytrickey/tag/exchange-rate-calcualtions/
http://blogs.roanoke.com/shoptimist/2013/06/whats-your-favorite-dollar-store/
![Page 14: Exchange Rate Wenmin wang. Agenda Exchange Rate Hedge Triangle Arbitrage Conclusion.](https://reader035.fdocuments.in/reader035/viewer/2022062423/5697bf821a28abf838c86092/html5/thumbnails/14.jpg)
Any Questions?