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Mastering Investment Banking Securities by Natasha Kozul

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8

Foreign exchange

Spot exchange rates

Direct and cross-rates

Forward exchange rates

INTRODUCTION

Foreign exchange refers to the exchange of one currency for another. It is written in the form CCY1/CCY2. The two currencies are referred to as ‘base currency’ on the left and ‘variable currency’ on the right. Its value refers to how much variable currency is paid/received for one unit of base currency. In domestic markets the base currency is the domestic currency, whilst in international markets it is typically USD. More and more frequently, various currencies are quoted against EUR. In financial markets trades involving virtually any combination of currencies are executed and the exchange rate tables (FX tables) are used. Table 8.1 gives ...

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