Foreign Exchange Risk Mitigation Techniques/Foreign Exchange Trading

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Unit 2.1-Foreign Exchange Risk Mitigation Techniques 

Introduction | Rates of Exchange | Market Drivers | Measuring FX Exposure | Business Needs for Foreign Currency | Foreign Exchange Trading | Common Instruments to Offset Risk | Summary | Resources | Activities | Assessment

Foreign Exchange Trading[edit | edit source]

The exchange of one currency for another currency, dollars (USD) for Japanese yen (JPY), is the basic definition of foreign exchange. There are two different types of quotations:

  • Indirect quotation - The price of a national currency expressed in terms of one unit of a foreign currency
  • Quoting Japanese yen at a rate of 110
  • 1 USD = 110.00 JPY
  • Direct quotation - The value of one unit of national currency in terms of the foreign currency
  • Quoting USD at a rate of .009091
  • 1 JPY = .009091 USD.
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