CHAPTER 15
Conclusion
Although foreign exchange may be confusing, in today’s global marketplace, there is a critical need for almost everyone to understand foreign exchange like never before. As the world shrinks, there is an ever-increasing likelihood that we will be required to address the risks associated with the fact that there are different currencies used all around the world and that these currencies will have an immediate impact on our world. We must be able to evaluate the effects of, and actively respond to, changes in exchange rates with respect to our consumption decisions, investment portfolios, business plans, government policies, and other life choices (both financial and otherwise). Moreover, there is an ever-increasing probability that we will have to transact in these foreign exchange markets—in our personal or professional life. This book has been intended to assist with this potentially new and doubtlessly confusing milieu.
The words that were written by Claude Tygier some 20 years ago are as true today as they were then:
To most people, the arena where the world’s major currencies fluctuate against each other remains very much of a mystery.1
Perhaps that is why I enjoy teaching foreign exchange. It is gratifying to empower people with a new language and to assist them in entering and actively participating in a world that I believe is truly fascinating.
At this closing stage, let me summarize what we’ve attempted to accomplish in this book by stating why I think teaching (and learning about) foreign exchange is so tough.
First, the quoting conventions are convoluted at best. Even the meaning of the expressions “American quote” and “European quote” are generally misunderstood. And the distinctions between “direct” and “indirect,” “base” and “counter,” “foreign” and “domestic” do nothing to help. Moreover, the quoting conventions are neither consistent, uniform, nor rational. Sometimes it’s Peso per Dollar. Sometimes it’s Dollar per Euro. And “Dollar-Yen” means Yen per Dollar. That’s always sounded backwards to me. (Again, don’t blame any of this on me. I didn’t make this up.) Further, the fact that the Interbank or OTC market uses one convention (Swiss Francs per Dollar) while the exchanges use the exact opposite (Dollars per Swiss Francs) only makes it worse. And, finally, the financial press doesn’t seem to help with this confusion and often seems content to add to the obfuscation.
Second, we use money when we buy and sell things. Most of us are not used to buying and selling money. “After all, what’s the price of a Dollar?” “A Dollar.” Put another way, we are used to seeing prices quoted in terms of monetary units; money is usually not thought of as the traded asset or underlying.
Third, the language of the currency markets and the associated jargon used by the FX professionals are as foreign to most of us as anything else in foreign exchange. What is “Cable”? The obvious ambiguities and the use of different names for the same thing don’t help. A “yard” of Japanese Yen? “He just said ‘paid.’ Did I buy or sell?” “Yes.”
Fourth and finally, as by now I trust you have been made painfully aware, there is always an exception to “the rule” in FX. Forewarned is forearmed!
Hopefully, if you’ve gotten this far, you’ve gained a handle on FX conventions; you’ve been exposed to the jargon (though genuine familiarity and comfort only comes, as with swimming or riding a bicycle, with practice); you’ve gained an understanding of how this market and it’s instruments work; you’ve acquired an ability to comprehend the reports, stories, and presentations in the popular and financial media; and you also now know some of the more common mistakes to be avoided.
The one thing that this book, unfortunately, cannot tell you is which way the Dollar (or Euro or Yen) is going to go in the future! And that’s one of the reasons why I find following the foreign exchange markets to be so interesting, puzzling, and entertaining.
Just remember, the foreign exchange markets are all about buying and selling money, and, as Mignon McLaughlin tells us, “Money is much more exciting than anything it buys.”2 Ultimately, it is our hope that this book has been educational and that what we have conveyed is practical, memorable, and useful.
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