Foreign Exchange Market Overview

Flashcards designed to test vocabulary and concepts related to the Foreign Exchange Market, based on lecture notes.

Foreign Exchange Market

A market where buyers and sellers transact in convertible currencies.

Foreign Exchange Rate

The price of one currency in terms of another currency.

Transaction Exposure Risk

The risk of loss arising from changes in exchange rates during a business transaction.

Translation Exposure Risk

The risk of altering the value of a company’s balance sheet due to currency value changes.

Economic Exposure Risk

The risk that changes in exchange rates affect a company's competitiveness in the market.

High-frequency Trading (HFT)

Automated trading platform used to transact orders at extremely high speeds to capitalize on market opportunities.

Technical Analysis

A method of evaluating FX prices by analyzing statistics and historical figures derived from market activity.

Fundamental Analysis

The interpretation of economic data and indicators to forecast FX price movements.

Pip

The smallest unit by which a price can change in forex trading, typically representing a change in the fourth decimal place.

Spread

The difference between the buying and selling price of a currency pair.

Forward Contracts

Legal agreement to exchange currencies at a predetermined rate on a specified future date.

Spot Market

A market where currencies are traded for immediate delivery.

Bretton Woods Agreement

1944 agreement creating fixed exchange rates and establishing the International Monetary Fund.

Managed Float Exchange Rate System

System where the currency's value is allowed to fluctuate in response to the foreign exchange market, but the central bank intervenes to stabilize it.

Central Bank Intervention

When a central bank buys or sells its own currency to influence exchange rates.

Money Broker

A financial intermediary that facilitates foreign exchange transactions by matching buyers and sellers.