Foreign exchange and money markets : managing foreign and domestic currency operations / Heinz Riehl, Rita M. Rodriguez.

Format:

Book

Author/Creator:

Riehl, Heinz.

Contributor:

Rodriguez, Rita M., 1944-

Language:

English

Subjects (All):

Foreign exchange.

International finance.

Money market.

Physical Description:

xvii, 453 pages : illustrations ; 24 cm

Place of Publication:

New York : McGraw-Hill, [1983]

Contents:

Part 1 Foreign Exchange and Money Markets 1

1 Who's Who in the Markets 3

Money market 4

What the money market is 4

Actors in the money market 4

Foreign money market 8

Why a Eurodollar market? 9

Actors in the foreign money market 11

Foreign exchange market 11

What the foreign exchange market is 11

Actors in the foreign exchange market 13

2 Interest Rates and Foreign Exchange Rates 19

Rates in the money market 19

Rates in the foreign money market 22

Spread between rates on domestic and Eurocurrency deposits 23

Revolving Euroterm loans 25

Rates in the foreign exchange market 30

Meaning of exchange quotations 30

Reciprocal rates 31

Cross rates 34

The chain 35

Price and volume quotations 36

3 Interactions between the Markets 51

The nature of cash flows 51

Value dates 54

Eligible value dates 55

Spot value dates 57

Forward value dates 57

Interactions between the money and foreign exchange markets 59

Operating in the money market 61

Operating in the foreign exchange market 61

Money market or foreign exchange market 66

4 Two-Way Markets: Bid and Offer Rates 82

Rates in the money market 83

Rates in the foreign exchange market 84

Meaning of exchange quotations 84

Reciprocal rates 86

Cross rates 87

Some comments on quotations 92

How can you evaluate the quality of a quotation? 92

Information content of quotations 93

5 Funds Management in a Two-Way Market 101

Swap rates 101

What are swap rates? 101

Bid and offer in the swap rate 103

Swap transactions 104

Swap transactions with matched cash flows: Covered interest arbitrage 107

Swap transactions with mismatched cash flows 109

6 Factors Affecting Spot Exchange Rates 122

The economics of international transactions 123

Trade in merchandise 123

Trade in services 126

Unilateral transfers 126

Capital account 126

Official reserves 128

Structure of the balance of payments 129

The determinants of exchange rates 131

The balance of payments approach 131

Purchasing power parity 132

Market expectations 133

International monetary system 136

7 Factors Affecting Interest Rates 140

The level of interest rates 140

Supply and demand for funds 141

Changes in the money supply 141

The shape of the yield curve 143

Market expectations 144

Other factors 146

Creditworthiness and market liquidity 148

Part 2 Problems and Opportunities in the Treasury Department 153

8 Operations in the Trading Room 155

Basic operations in the market 155

Taking advantage of disequilibrium situations: Covered interest arbitrage 155

Taking advantage of expected changes in interest rates 160

Rolling over a net exchange position 165

Catering to customers' needs in the forward market 169

Getting out of an exchange position 169

Creating a forward exchange market 174

Computing the effective yield or cost of funds 182

The value of float 182

All-in cost of exchange transactions 183

Cost of foreign currency deposits 184

Central banks' interventions in foreign exchange markets 186

How not to do it 187

Intervention to achieve domestic objectives 189

Intervention to support the spot rate 190

9 Funds Management in the Exchange Market 213

Borrowing and investing without an exchange position 214

Raising needed funds in a given currency 214

Investing available funds in a given currency 214

Another example 216

Borrowing and investing with an exchange position 219

Managing opposite cash flows in different currencies 229

Cash flows take place immediately 229

Cash flows will take place in the future 231

Funds management under exchange controls 236

Investing local funds under capital inflow controls 236

Borrowing foreign funds under capital outflow controls 238

Currency diversification and liquidity in a portfolio 244

10 Funds Management in the Money Market 259

Money market instruments in the United States 260

U.S. Treasury bills and other government securities 260

Federal funds 261

Certificates of deposit 264

Commercial paper 268

Repurchase agreements 268

Bankers' acceptances 270

Futures market for money market instruments 272

Money market funds 274

Comparing rates in the money market 275

Comparing market rates 275

Comparing lending rates 279

Typical money market operations 282

Liquidating an instrument before maturity 282

Tail-end gapping (riding the yield curve) 283

Spread trading (arbitrage) 285

Taking advantage of anticipated changes in interest rate levels 288

Hedging interest rate positions 290

Cash-flow management and the relationships among financial markets 292

11 Financing Commercial Transactions 297

Hedging the net exchange position created by trade 299

Financing trade after sale is realized 304

Finacing trade when order is received 308

Hedging alternatives in controlled exchange markets 313

Cross-currency hedging 314

A mutual indemnification agreement 315

12 Managing Exposure to Exchange Risk 327

Exposure: Cash flows versus accounting conventions 327

Hedging cash-flow exposures 332

Hedging in the forward market 334

Hedging in the money market 334

Hedging balance-sheet exposures 339

Hedging in the financial markets 339

Modifying the balance sheet 342

Part 3 Controlling Treasury Operations 351

13 Accounting for Treasury Operations 353

Accounting for money market operations 353

Recording money market transactions 353

Measuring profits in money market operations 356

Bookkeeping for money market operations 361

Accounting for foreign exchange operations 364

Recording foreign exchange transactions 364

Measuring profits in foreign exchange operations 366

Bookkeeping for foreign exchange operations 373

Accounting for joint exchange and money market transactions 374

Covered interest arbitrage 375

Creating a forward exchange market 378

Exchange transactions with all-in price quotes 379

Loan financing through swaps 381

14 Risks in Treasury Operations 386

Credit risk 386

Credit risk in the money market 387

Credit risk in the foreign exchange market 387

Sovereign risk 389

Rate risk 389

Rate risk in the money market 389

Rate risk in the foreign exchange market 390

Liquidity risk 391

Liquidity risk in the money market 391

Liquidity risk in the foreign exchange market 392

Evaluation of comparative risks 393

Comparative credit risks 396

Comparative rate risks 397

Comparative liquidity risks 397

Overall assessment 398

15 Control of Treasury Operations 401

Credit risk 401

Credit risk in the money market 401

Credit risk in the foreign exchange market 402

Sovereign risk or cross-border risk 404

Rate risk 405

Changes in interest rates 405

Changes in exchange rates 405

Liquidity risk 406

The cash-flow report 407

The liability-mix report 414

Miscellaneous controls 417

Aggregate limits 417

Confirmations 418

Protection against fraud 418.

Notes:

Rev. ed. of: Foreign exchange markets. c1977.

Includes index.

ISBN:

0070526710 :

OCLC:

8689680