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The Mark-to-Market Value of a Forward Contract

A forward contract is an agreement between two parties to trade one currency for another on a specified future date and at a pre-determined rate. In other words, it is an exchange rate transaction whose settlement timeline exceeds T+2. The…

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Spot Rate, Forward Rate, and Forward Premium/Discount

A spot exchange rate is the general price level in the market used to directly trade one currency for another, with the exchange occurring at the earliest possible time. The standard delivery time for spot currency transactions is no longer…

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The Triangular Arbitrage Opportunity

Every bid-offer quote a dealer displays in the interbank FX market should possess the following properties to avoid the creation of arbitrage opportunity: The bid should not be higher than the current interbank offer, and the offer should not be…

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The Bid-offer Spread

An exchange rate is the price of the base currency expressed in terms of the price currency. For example, assume that the USD/CAD rate is 0.7625. This implies that the Canadian dollar, which is the base currency costs 0.7625 US…

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Study Notes for CFA® Level II – Economics – offered by AnalystPrep

Reading 6: Currency Exchange Rates: Understanding Equilibrium Value -a. Calculate and interpret the bid-offer spread on a spot or forward currency quotation and describe the factors that affect the bid-offer spread; -b. Identify a triangular arbitrage opportunity and calculate the…

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