Topics
Characteristics of the currency market and of securities that trade in it
Describe characteristics and structure of the currency market (its locations, participants - interbank, wholesale and retail segments, settlement mechanisms, etc.)
Describe characteristics of currency-related trades securities (spot transactions, forward transactions, fx swap, and currency options)
Quotes and transactions
Interpret the bid and ask quotes for a currency
Calculate the outcome when converting one currency to another
Forward exchange rates
Interpret forward quotes for a currency
Explain the result of a forward transaction.
Implied cross rates
Calculate the implied cross rates for which one currency trades for another in the NY currency market.
Arbitrage
Understand what is required for an arbitrage opportunity to exist
Be able to identify arbitrage opportunities in:
Inter-dealer arbitrage
Triangular arbitrage
Covered interest arbitrage
Explain what trades must occur for a trader to take advantage of an identified arbitrage opportunity and determine the profitability of the trade
Theories of currency value
Be able to explain the three theories of currency value
Flow theory
Stock theory
Asset theory
and identify implications of each for expected change in a currency's value
Balance of payments
Understand the information provided by a country's balance of payments statement