Dipak Abhyankar
9820321404
Bws-ems, imf-ibrd, ida-ifc, arbi/trading/speculation, ecm/forex market
Gold Standard Systems
Generic- This is a general generic
Institutionalized concept for fiat currency
printing.
Basic-refined Basic Conceptual version of
currency system.
General-US focused Any country is allowed to
choose its Gold pegging
(Bullion Standard) or
currency pegging (exchange
standard).
Risk Each currency carried a
separate disconnected set of
risks from other countries.
Time period This general concept was
used till introduction of
Bretton Woods in 1944.
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European Monetary System
Time period 1979- to date
Countries European Members
Pegging Currencies pegged against
each other as parity grid.
Objective Economic growth of Europe
Responsibility Collective- All EU members,
equally responsible.
Gold Convertibility Not applicable in EMU
Clause
Bretton Woods System
This is institutionalized and
policy driven concept.
This is disciplined refinement
of Gold Standard system. It
was adapted in Bretton Woods
Meeting in 1944.
USD was in Bullion standard
with hard parity. Other
currencies were in exchange
standard with flexible pegging.
US Dollar dependent system.
Risk was concentrated around
US Dollar.
This was used till 1978.
Bretton Woods System
1944 to 1972
All IMF members
Currencies pegged with USD.
USD in parity with gold.
IMS for stability
US dominated.
Applicable to USD till 1968
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Euro Currency Market
Definition Euro Currency Market is a
market wherein Foreign
Currency is deposited,
borrowed or invested in a
country other than home
country.
Record in Balance Euro Currency Market
of Payments transactions are recorded in
capital account of Balance of
Payments.
Price Discovery Demand Supply of currency in
Euro Currency Market
determines Interest Rate of the
respective currency.
Segments Segmented as Euro Deposits,
Euro Credits and Euro Bonds
Interdependency Euro Market transactions drive
forex rates in forex markets.
Traded asset Euro Markets trade in
investment of currencies.
Dipak Abhyankar
9820321404
Forex Market
Forex market is a market wherein
currencies are traded for the
purpose of exports, imports,
remittances, investments and other
such purposes for Spot as well as for
forward transactions.
Forex Market transactions are
recorded in current account of
Balance of Payments.
Demand Supply of currency in Forex
Market determines spot and
forward exchange rate of the
respective currencies.
Segmented as Wholesale and retail.
Forex Market transactions are result
of (inter alia) euro market
transactions. However, forex rates
have rebounding effect on euro
market transactions and investments.
Forex Markets trade in currencies.
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Arbitrage
Profit opportunity because of existing
(noticed) price difference.
Arbitrage has to exist. If it does not,
arbitrager will not have any earning.
Depends on market.
Two traders offering different rates, create
arbitrage opportunity.
Arbitrage could be exploited by any
bonafide market player including
individuals.
Any arbitrage opportunity vanishes as
many arbitragers exploit it. This is
obviously because demand supply forces
get adjusted.
Supposed to be riskless, hence no chance of
losses.
Types (in forex):
Geographical, Triangular and Interest Rate
adasda
Depreciation
Market Driven
Generally 'analog' type movement
Graph
Statistical tools and econometrics can
attempt to predict.
Central Bank Intervention may be desired
to prevent rapid depreciation.
It happens first and then it is measured.
It's a concept related to free float.
Market driven, hence government inaction
may be subject to criticism.
Happens in India for last 15-20 years.
Dipak Abhyankar
9820321404
Trading
Profit margin (decided and) earned by
buying and selling, usually as a
consideration of:
a. Wholesale to retail unbundling
b. Holding Cost
c. Creating branch (local availability)
Trading is a business. It always exists. Of
course market demand-supply would drive
the volume.
Traders adjust price as per their desire to
hold the asset and desired spread (margin)
Traders are established entities which
define their business as 'trading'. In forex
market they are banks, Authorized Dealers,
money changers, etc.
Trade is a business. It continues.
Trader has business risk. Position risk.
Unique situations may lead to losses.
Types (in forex):
Authorized Dealers
Money Changers
Devaluation
Government Dictated
Generally 'digital' movement
Graph
Human decision. All is just logical guess.
Market pressure on currency valuation may
force the government to devalue.
It is decided 'how much' and then done by
the government.
It's a concept related to fixed peg.
Deliberate, hence government action may
be subject to criticism.
Happened in India in 60s and 70s.
Happened in China till recent times.
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ERERT
The International Monetary Fund and the World Bank at a Glance
International Monetary Fund
1. oversees the international monetary
system
2. promotes exchange stability and
orderly exchange relations among its
member countries
3. assists all members--both industrial
and developing countries--that find
themselves in temporary balance of
payments difficulties by providing
short- to medium-term credits
4. supplements the currency reserves
of its members through the
allocation of SDRs (special drawing
rights); to date SDR 21.4 billion has
been issued to member countries in
proportion to their quotas
5. draws its financial resources
principally from the quota
subscriptions of its member
countries
6. has at its disposal fully paid-in
quotas now totaling SDR 145 billion
(about $215 billion)
7. has a staff of 2,300 drawn from 182
member countries
Dipak Abhyankar
9820321404
World Bank
1. seeks to promote the economic
development of the world's poorer
countries
2. assists developing countries through
long-term financing of development
projects and programs
3. provides to the poorest developing
countries whose per capita GNP is
less than $865 a year special
financial assistance through the
International Development
Association (IDA)
4. encourages private enterprises in
developing countries through its
affiliate, the International Finance
Corporation (IFC)
5. acquires most of its financial
resources by borrowing on the
international bond market
6. has an authorized capital of $184
billion, of which members pay in
about 10 percent
7. has a staff of 7,000 drawn from 180
member countries
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XFD
Arbitrage
Profit opportunity because of existing
(noticed) price difference.
Arbitrage has to exist. If it does not,
arbitrager will not have any earning.
Depends on market.
Two traders offering different rates, create
arbitrage opportunity.
Riskless
Any arbitrage opportunity vanishes as
many arbitragers exploit it. This is
obviously because demand supply forces
get adjusted.
Normally profit margins are thin and
reducing.
Types (in forex):
Geographical, Triangular and Interest Rate
Dipak Abhyankar
9820321404
Speculation
Profit (or loss) possibility because of
expected price change.
Speculation is possible at any point of time,
so long as speculator has a view on
possible market movements in future.
Different expectations of price movement
(of two people) lead to speculative position.
Risky
Speculative potential is a perception and
view.
Standard deviation of speculative activity is
very high.
Types (in forex):
Currency rate speculation
Interest rate speculation
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