Western financial management and investment decisions

Author: Wang Gefei
Publisher:
Publish Date: 2001-04-01
Features: The main content of this book comes from the author's 200-page course financial learning notes. The 200-page classroom lectures and 11 reference books read. This book contains a lot of content, including financial analysis, investment decision analysis, and international risk management. Due to space constraints, this book can only introduce some basic analytical methods and operational methods of European financial analysis and investment decision in a relatively simple way.
Excerpt: How to Quote Exchange Rates Please have a look at the following example: We can see that the spot $/Pound quote is: Close Bid Ask 1.5494 483504, Thus the complete $/Pound exchange rate quote; 1.5483—1.5504 $/Pound The bid rate is the rate at which the bank sells the currency. The ask rate is the rate at which the bank purchases the currency. The difference is known as the bid-ask spread and represents the gross profit margin of the bank. Whether using the direct or indirect quotation method, the smaller number is always termed the bid rate, and the higher is the ask rate.
3.2.2 Spot and Forward Market
To buy a currency at the spot exchange implies immediate delivery and payment. There exists the forward market where deals are for future delivery. The reason to use the forward market is to hedge against foreign exchange risk.
Explanation of the forward market: The forward foreign exchange market, where buyers and sellers sign contracts to specify the currency, amount, exchange rate, and settlement time for buying or selling foreign exchange. The settlement period is usually calculated in months, typically 1, 3, or 6 months, with a few cases being 1 year.