Starter: Focus Group Options Video - PowerPoint Presentation

1. Starter: Focus GroupOptions VideoWatch the video clip and provide your feedback on the following areas:AnimationsColourImagesVoiceoverBackground musicWhat works well?What could be improved?Any other comments

2. Foreign ExchangeChapter 7.2.1Fundamentals of Financial Services

3. Key Topic AreasCharacteristics of the foreign exchange marketCurrency tradingExchange rates

4. Lesson ObjectivesBy the end of the lesson:Everyone MUST know:The basic characteristics of the foreign exchange marketCurrency tradingExchange rates

5. Foreign Exchange…Changing a particular quantity of one currency for another currencyWe mainly know of exchanging currencies when we go on holiday Foreign exchange activity is much larger for businesses who buy and sell things across bordersDaily foreign exchange activity exceeds $5 trillionThe US dollar is regarded as the most important currency in the world and it is typical for foreign exchange rates to be quoted against the US$.Banks and their dealers offer services to clients arising from international trade and travel with fees earned as a result.

6. Currency QuotesTrading of foreign currencies clearly involves selling one currency and buying another, the two currencies involved are described as ‘pairs’. Price at which a pair is bought and sold is the exchange rateWhen the exchange rate is being quoted, the name of the each currency is abbreviated to a three letter referenceUSDGBPBase CurrencyThe first currency quoted in a pairIt is always equal to one unit of that currencyCounter or Quote CurrencyThe second currency quoted in a pair1 : 0.75In this case $1 is worth £0.75Most commonly quoted currency pairs: USDJPYUSDEurUSDCHFGBPUSDEurGBP

7. Currency quotesWhen currency pairs are quoted, the foreign exchange trader will quote a bid and ask price:USDGBP1.1164/66QuoteWhen quoting, the base currency is not mentioned as the convention is that the base currency is always 1In this case:If a client wants to buy £100,000 he will need to pay the higher of the two prices ($1.1166) and deliver $111,660If a client wants to sell £100,000 he will need to pay the lower of the two prices ($1.1164) and receives $111,640

8. The forex market is primarily an over-the-counter (OTC) market, where brokers and dealers negotiate directly with each other.Continually provide the market with both bid (buy) and ask (sell) pricesUse the market to try to control money supply, inflation and interest rates.Individual forex traders (i.e. retail investors) are becoming increasingly important in the global forex market.Currency TradingLondon has grown to become the world’s largest forex market due to it’s ideal location between the Asian and American time zones

9. Exchange Rate ActivityComplete the table…ISO 4217 Currency CodesCountryName of currencySymbol£1 = ?AUDGBPCADCNYDKKEURHKDINRJPYRUBCHFZARSEKUSD

10. Exchange Rate ActivityComplete the table…ISO 4217 Currency CodesCountryName of currencySymbol£1 = ?AUDGBPCADCNYDKKEURHKDINRJPYRUBCHFZARSEKUSDAustraliaAustralian DollarGreat BritainBritish PoundCanadaCanadian DollarChinaChinese YuanDenmarkDanish KroneEurozoneEuroHong KongHong Kong DollarIndiaIndian RupeeJapanJapanese YenRussiaRussian RoubleSwitzerlandSwiss FrancSouth AfricaSouth African RandSwedenSwedish KronaUnited StatesUnited States Dollar

11. Case Study: UsainUsain is visiting London for a short break. He is normally based in the US, so all of his money is in US dollars. He knows he will need some UK sterling to pay for taxis, buses, food and entertainment. He draws a lot of US dollars out of his US bank and sells them for UK sterling at the foreign exchange dealer’s kiosk at the airport.This means Usain has entered into a currency trade.

12. Case Study: UsainThe amount of UK sterling that Usain receives at the kiosk will be determined by the prevailing exchange rate between US dollars and UK sterling. The quoted rates might be as follows:There are two sets of quotes:The first quote is the number of US dollars per pound.The second quote is the number of UK pounds per dollar.Which of the two rates will be highlighted by the kiosk assistant for Usain?Dollars per Pound1.54 – 1.64Pounds per Dollar0.61 – 0.65

13. Case Study: UsainWhich of the two rates will be highlighted by the kiosk assistant for Usain?Dollars per Pound1.54 – 1.64Pounds per Dollar0.61 – 0.65The relevant rate for Usain is the number of UK pounds per US dollar, since he is SELLING DOLLARS FOR UK POUNDS, so the 0.61 – 0.65 is the quote that will be highlighted.Each quote is made up of two figures, a lower figure on the left and a higher figure on the right. The relevant side depends on whether the client at the kiosk is buying or selling the particular currency.

14. Case Study: UsainHow many pounds will Usain get, assuming he is selling $1,000?Dollars per Pound1.54 – 1.64Pounds per Dollar0.61 – 0.65

15. Case Study: UsainUsain’s holiday break in the UK is now over and he still has £100 in cash. Assuming that the quote at the kiosk is still the same, how many US dollars can Usain expect?Dollars per Pound1.54 – 1.64Pounds per Dollar0.61 – 0.65

16. Flipping an exchange rate quoteA foreign exchange dealer is quoting the following rate for the number of euros per UK pounds.EUROs per £1.245 – 1.255The foreign exchange dealer’s quote of euros per UK pound needs to be flipped to provide the number of UK pounds per euro.£s per EUR: 1/1.255 = 0.797 – 1/1.245 = 0.803So the quoted would be £s per EUR: 0.797 – 0.803

17. Currency JargonSell rate This is the rate at which we sell foreign currency in exchange of local currency. For example, if you were heading to Europe, you would exchange British pounds for Euros at the sell rate.Buy rate This is the rate at which we can buy foreign currency back from you into your local currency. For example if you were returning from America, we could exchange your US Dollars back into British pounds at the buy rate of the day.

18. PlenaryHave you met the learning objectives?

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