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Dedication
by TIM WEITHERS
Foreign Exchange: A Practical Guide to the FX Markets
Title Page
Copyright Page
Dedication
Preface
Acknowledgments
CHAPTER 1 - Trading Money
INTRODUCTION
TRADING MONEY
THE ROLES MONEY PLAYS
THE MAJOR CURRENCIES
SOME INTERESTING QUESTIONS
APPENDIX: Countries, Currencies, and ISO Codes
CHAPTER 2 - Markets, Prices, and Marketmaking
WHAT IS A “MARKET”?
WHAT IS A “PRICE”?
BUYERS AND SELLERS
MARKETMAKING
SUMMARY
CHAPTER 3 - Interest Rates
WHAT ARE “INTEREST RATES”?
INFLATION
DAY COUNT OR DAY BASIS
COMPOUNDING
DISCOUNTING
TYPES OF INTEREST RATES
INTEREST RATES IN THE REAL WORLD
CHAPTER 4 - Brief History of Foreign Exchange
HISTORICAL BACKGROUND
THE FX MARKETS TODAY
THE REGULATORY ENVIRONMENT AND CENTRAL BANK INTERVENTION
SUMMARY
CHAPTER 5 - The Foreign Exchange Spot Market
THE SPOT MARKET
SPOT FX QUOTING CONVENTIONS
ECONOMIC INTERPRETATION
PURCHASING POWER PARITY
CROSS RATES AND TRIANGULAR ARBITRAGE IN THE SPOT MARKET
THE BID-ASK SPREAD IN FOREIGN EXCHANGE
TIMING
SETTLEMENT
MARKET JARGON
“THE BEST ARBITRAGE AROUND!”
CHAPTER 6 - Foreign Exchange Forwards
INTRODUCTION TO FORWARDS AND FORWARD PRICING
FOREIGN EXCHANGE FORWARDS AND FORWARD PRICING
INTEREST RATE PARITY (COVERED INTEREST ARBITRAGE)
FX SPOT-FORWARD ARBITRAGE
FX FORWARD PRICE QUOTES AND FORWARD POINTS
TIMING
OFF-MARKET FORWARDS
FOREIGN EXCHANGE FORWARDS IN THE REAL WORLD
CHAPTER 7 - Foreign Exchange Futures
BACKGROUND
FUTURES VERSUS FORWARDS
FOREIGN EXCHANGE FUTURES CONTRACT SPECIFICATIONS
MARGIN
WHY USE FUTURES?
OPTIONS ON FX FUTURES
SUMMARY
CHAPTER 8 - Foreign Exchange Swaps or Cross-Currency Swaps or Cross-Currency Interest Rate Swaps or . . .
INTRODUCTION
FX SPOT-FORWARD SWAPS
CROSS-CURRENCY SWAPS OR FX CROSS-CURRENCY INTEREST RATE SWAPS OR FX BOND SWAPS
SUMMARY
CHAPTER 9 - Foreign Exchange Options
OPTION BASICS
EQUITY OPTIONS
PUT-CALL PARITY WITH EQUITY OPTIONS
IN-THE-MONEY, AT-THE-MONEY, AND OUT-OF-THE-MONEY
THEORETICAL OPTION VALUE AND OPTION RISK MEASURES (“THE GREEKS”)
FOREIGN EXCHANGE OPTIONS
PUT-CALL PARITY IN FOREIGN EXCHANGE
PERSPECTIVE MATTERS
FX OPTION PREMIUM
VOLATILITY
USES AND STRATEGIES
APPENDIX: Theoretical Option Valuation
THE BINOMIAL MODEL
THE BLACK-SCHOLES/GARMAN-KOHLHAGEN MODEL
THE GARMAN-KOHLHAGEN OPTION RISK MEASURES OR “GREEKS”
CHAPTER 10 - Exotic Options and Structured Products
WHAT IS AN EXOTIC OPTION?
NONSTANDARD OPTIONS
DIGITAL OR BINARY OPTIONS
BARRIER OPTIONS
OTHER EXOTIC OPTIONS
FX-LINKED NOTES
CHAPTER 11 - The Economics of Exchange Rates and International Trade
MONEY VERSUS CURRENCY
TYPES OF FX EXPOSURES
FIXED VERSUS FLOATING EXCHANGE RATES
IMPLICATIONS OF MONETARY POLICY
TRADE DEFICITS: A CURSE OR A BLESSING
POLITICS AND ECONOMICS
CHAPTER 12 - Currency Crises
THE END OF BRETTON WOODS
BANKHAUS HERSTATT
THE ERM CRISIS OF 1992
THE ASIAN CRISIS OF 1997
THE RUSSIAN CRISIS OF 1998
THE TURKISH LIRA CRISIS OF 2001
THE ARGENTINEAN PESO CRISIS OF 2002
SUMMARY
CHAPTER 13 - Technical Analysis
INTRODUCTION
WHAT IS TECHNICAL ANALYSIS?
METHODS OF TECHNICAL ANALYSIS
TECHNICAL ANALYSIS IN FOREIGN EXCHANGE
TECHNICAL ANALYSISTODAY
SUMMARY
CHAPTER 14 - Where Do We Go from Here?
CHAPTER 15 - Conclusion
APPENDIX - Precious Metals
Answers to the Chapter Exercises
Notes
References
About the Author
Index
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Preface
Dedication:
To my boys: Michael, Stephen, and Peter
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