QUESTION 1 Foreign exchange consists of all the ways and means by which the rights to wealth in one country's currency may be converted into rights to the wealth in terms of the currency of another country An exchange rate is the price of one currency in terms of another There is gle foreign exchange market place, unl ike the stock or futures markets, ie there is no"floor trading"as such. Transactions are carried out by telephone, telex and computer by licensed dealers and later confirmed by documentation It should be noted that the foreign exchange market is a highly in tegrated global market where currencies are traded somewhere every hour of the day The foreign exchange market has two tiers- the interbank(wholesale)market and the client (retail) market It is also worth mentioning the advantage found in Australia's time zone. As the foreign exchange market in Australia is centred in Sydney and Melbourne, it enjoys an advantage over other markets in the Asia/Pacific region insofar as our early and late trad ing overlaps with late New York and early European trading respectively. Australia effectively bridges the world's two largest foreign exchange markets QUESTION 2 Students should recognise the difference between the retail and wholesale foreign exchange markets, which is basically the size of the transaction, small v large The direct quote is when we express another currency in terms of our own 18312/1.8447 The indirect quote is when one of our dollars is expressed in US cents 0.54610.5421 This then is an IndireCt quote b) The relationship between the two quotes is simply the inverse(1/). It might pay to use some extra examples such as AUDl/USD0.461=(1/0.5461)= USD I/AUD18312=(1/1.8312)=0.5461 etc, making the point that changing from direct to indirect and back is simply the application of the inverse functionOctober 2003 QUESTION 1 Foreign exchange consists of all the ways and means by which the rights to wealth in one country's currency may be converted into rights to the wealth in terms of the currency of another country. An exchange rate is the price of one currency in terms of another. There is no single foreign exchange market place, unlike the stock or futures markets, ie there is no "floor trading" as such. Transactions are carried out by telephone, telex and computer by licensed dealers and later confirmed by documentation. It should be noted that the foreign exchange market is a highly integrated global market where currencies are traded somewhere every hour of the day. The foreign exchange market has two tiers - the interbank (wholesale) market and the client (retail) market. It is also worth mentioning the advantage found in Australia's time zone. As the foreign exchange market in Australia is centred in Sydney and Melbourne, it enjoys an advantage over other markets in the Asia/Pacific region insofar as our early and late trading overlaps with late New York and early European trading respectively. Australia effectively bridges the world's two largest foreign exchange markets. QUESTION 2 Students should recognise the difference between the retail and wholesale foreign exchange markets, which is basically the size of the transaction, small v large. a) The direct quote is when we express another currency in terms of our own: 1.8312/1.8447 The indirect quote is when one of our dollars is expressed in US cents: 0.5461/0.5421 This then is an INDIRECT quote. b) The relationship between the two quotes is simply the inverse (1/x). It might pay to use some extra examples such as: AUD 1/USD 0.5461=(1/0.5461)=USD 1/AUD 1.8312=(1/1.8312)=0.5461 etc, making the point that changing from direct to indirect and back is simply the application of the inverse function