This blogpost lists a few random points relating to the book titled, “A Foreign Exchange Primer”, written by Shani Shamah.

  • Average trading volume in Forex markets is 6.6 Trillion dollars, in 2019
  • A spot transaction is where delivery of the currencies it two business days from the trade date
  • The first metal money and coins appeared i China in 1000 BC. The coins were made of base metals, often containing holes so that they could be put together like a chain
  • The first paper bank notes appeared in China in 800 AD
  • The early twentieth century saw the end of the Gold standard
  • In Jan 2002, the euro currency became the legal tender in all 12 participating countries
  • There are daily fixings in some countries where major currency dealers meet to fix the exchange rate of their local currency against currencies of their major trading partners
  • 2019 stats - Average trading volume of 6.6 T
    • 50% of average trading volume in forex markets is FX swaps
      • A transaction which involves the actual exchange of two currencies on a specific date, at a rate agreed at the time of conclusion of the contract and a reverse exchange of the same two currencies at a date further in the future, at a rate agreed at the time of contract
      • A FX swap comprises two legs; a spot or forward FX transaction + a forward FX transaction
    • 30% of average trading volume is spot
    • 15% of the average trading volume is outrights
    • 4% of the average trading volume is Options and other products
    • 2% of the average trading volume is Currency swaps
  • 90% of all trades in the world are against USD
  • A currency swap is often referred to as a cross currency swap, and for all practical purposes the two are basically the same. But there can be slight differences. Technically, a cross currency swap is the same as an FX swap, except the two parties also exchange interest payments on the loans during the life of the swap, as well as the principal amounts at the beginning and end
  • Top 5 currency pairs by turnover in 2019
    1. USD/EUR
    2. USD/JPY
    3. USD/GBP
    4. USD/AUD
    5. USD/CAD
  • NDFs are synthetic foreign currency forward contracts on non-convertible currencies
  • An NDF is a short-term committed forward ‘cash settlement’ currency derivative instrument. It is essentially an outright forex contract whereby on the contracted settlement date, P&L is adjusted between two counter parties
  • NDFs are non-cash products, which are off the balance sheet and as the principal sums do not move, they possess very much low counterparty risks
  • Broken-date contract is a forward contract with maturity other than the normal market quote of complete months
  • The accepted practice of quoting in the spot markets is the European terms where the USD is always the base currency. It says the amount of foreign currency needed to buy one US dollar
  • However there are some currencies like Euro, where the quoting convention is in American Terms. It expresses the amount of foreign currency required to buy one unit of domestic currency. Domestic currency is the base currency and the foreign currency is the counter currency
  • Forward points. forward pips or swap points are relative interest rate differentials expressed as units of currency, or fractions of the spot value of that currency
  • Usually, market makers will quote only the last two numbers in the prices, for example 03/08, thus assuming the other party knows the rest of the price, which is known as big figure
  • Most foreign exchange deals are executed for value two business days forward, or longer. However, some participants could have a need for currency the same day, the next day or the day after the spot. The terminology for these different time periods is
    • value same day - overnight
    • value tomorrow - tom next
    • spot
    • value day after - spot next
  • Factors affecting the yen against the dollar
    • Ministry of Finance
    • Interest rates
    • Japanese Government Bonds
    • Economic planning agency
    • Ministry of International trade and Industry
    • Economic data
    • Cross rate effect
  • Factors affecting Swiss franc against the dollar
    • Uncertainty over the euro
    • Turmoil in emerging markets
    • Swiss National Bank
    • Interest rates
    • Economic data
    • Cross rate effect
  • Factors affecting the American dollar
    • FED
    • FOMC
    • Fed Funds rate
    • Discount rate
    • 30-year treasury bond
    • 10-year treasury note
    • Treasury
    • Economic data