NISM Series I — Currency Derivatives

Welcome to NISM Series I — Currency Derivatives. We will study Currency markets, work through an example, and practise using the course's learning material. Preparation support for NISM Series I — Currency Derivatives. This is independent educational preparation; official certification is conducted by the relevant authority. Sign in and use the study header to open your authorised course. Select this published lesson. Start Course Tutor with Auto audio on: it teaches continuously, answers a typed question, then resumes. The foreign exchange market has no single physical location. It is a network of banks, dealers, corporations, funds and exchanges transacting continuously across time zones. The largest part of it is over the counter, meaning two parties agree terms bilaterally. A bid-ask spread is a real cost and it is worth working through. Suppose a dealer quotes the rupee price of a dollar as eighty-three rupees and twenty paise bid, eighty-three rupees and twenty-four paise ask. The bid is the price at which the dealer buys dollars from you; the ask is the price at which the dealer sells dollars to you. The spread is eighty-three point two four minus eighty-three point two zero, which is four paise, or zero point zero four rupees. An importer buying one hundred thousand dollars pays at the ask, so the cost is one hundred thousand multiplied by eighty-three point two four, which is eighty-three lakh twenty-four thousand rupees. Had the importer been able to transact at the midpoint of eighty-three point two two, the cost would have been eighty-three lakh twenty-two thousand. The difference, two thousand rupees, is the half-spread cost of this transaction, calculated as one hundred thousand multiplied by zero point zero two. If the importer immediately reversed the trade at the bid, the round-trip cost would be one hundred thousand multiplied by zero point zero four, which is four thousand rupees. Which mistake would change the reasoning in this example? The first mistake is treating speculators as a problem the market would be better without. Without them there is no counterparty for the hedger and no liquidity in the order book. Fix it by describing each group by its function rather than by its reputation. Ask Course Tutor: please explain this step from the example. An importer buying one hundred thousand dollars pays at the ask, so the cost is one hundred thousand multiplied by eighty-three point two four, which is eighty-three lakh twenty-four thousand rupees. Why does it follow? Add what you tried, so the explanation addresses your difficulty. Now try the source practice. What does over the counter mean? Pause before the answer. The source answer is: that two parties agree terms bilaterally rather than through an exchange order book. Compare your reasoning as well as the result. If your response differs, return to the worked example and identify the step that needs correction. Explain the key idea in your own words, revisit any mistaken step, then continue to the next lesson. Use Stop to end Course Tutor when you finish.