| European
terms or direct quotation
This is when a fixed amount of foreign currency is quoted against
a variable amount of domestic currency.
Example:
A USD/CHF rate of 1.3085 means the following:
-
$1 can be exchange for 1.3085 Swiss
francs.
-
The USD is the base currency and
the CHF is the counter currency.
-
If you buy USD then you sell CHF
and vice versa
To summarise, most currency pairs are
direct quotations in the international FX market.
| Direct
quotation I unit of foreign currency can
be exchanged for a variable amount of domestic
currency. |
European
terms I unit of domestic currency can be
exchanged for a variable amount of foreign
currency |
|
Unless specified, spot trades are quoted for amounts
of base currency.
Quote Example:
If a trader asks for a quote in dollar yen, it is understood
the request is for the base currency, USD, unless the
trader asks for dollar yen in Yen. The quotation is
still European regardless of whether you trade in dollar
on Yen amounts.
Likewise for a quote in Sterling is understood that
the request is for the base currency, GBP.
Brokers and traders need financial data such as market
and international news, bid/offer quotes, analysis services
etc, which are provided by information vendors such
as Reuters, Bloomberg and Bridge Information Systems.
However, in many cases it is brokers who create an interest
in financial instruments in order to get their clients
to buy or sell.
The use of automated electronic trading systems is becoming
increasingly more important in these markets in which
trading takes place 24 hours per day.
Trading takes place:
-
Over- the- counter (OTC).
-
Using electronic trading systems.
-
[Top]
Dealers trade
Dealers trade in a number of different ways, the main
methods include:
-
Direct trading over the phone- interbank.
-
Direct electronic trading, for example
on Reuters Dealing 2000-1 interbank, Reuters Dealing
2000-1 is a direct dealing service for dealers. The
dealing conversation is displayed on screen, the details
of which is recoded and can be reviewed. The system
also produces a deal ticket automatically. Reuters
Dealing 2000-2 is an electronic broking system where
dealers can enter bid and offer prices or take prices
quoted by dealers.
-
Trading using a voice broker.
Currently, Some FX dealers have already created web-based
services for spot FX and Fx outright forwards. However,
these services are currently only available for retail
investors. Nevertheless, many wholesale banks are the
process of developing FX and money market trading services
that use Internet protocols across secure private electronic
networks.
From the following examples, you will appreciate
why spot deals involve large profits and losses:
[Top]
Example GBPUSD
Understand how a 1-pip difference (change in
the 4th decimal) on USD 100,000 (counter currency)
results in a profit/loss effect of GBP 4.38 (base
currency),
| When
GBP-USD 1.5110 changes to 1.5111. |
Converting
the difference of GBP 4.38 to Dollars,
@ GBP-USD 1.5111 the last price traded |
USD
100,000
---------------- = GBP 66,181.33
USD 1.5110
----
GBP
|
GBP
4.38 X USD 1.5111
-----
GBP
= USD 6.61 |
| USD
100,000
---------------- = GBP 66,176.95
USD 1.5111
----
GBP
---------------------
GBP
4.38(difference)
|
|
It also means the YIELD PER PIP
at price levels noted above is USD 6.61.
[Top]
Example EURUSD
Understand how a 1-pip difference (change in
the 4th decimal) on USD 100,000 (Counter currency)
results in a profit/loss effect of EUR 7.55 (Base
currency),
| When
EUR-USD 1.5110 changes to 1.5111. |
Converting
the difference of GBP 4.38 to Dollars,
@ EUR-USD 1.5111 the last price traded |
USD
100,000
---------------- = EUR 86,880.97
USD 1.510
----
EUR
|
EUR
4.38 X USD 1.511
-----
EUR
= USD 8.69 |
| USD
100,000
---------------- = EUR 86,873.42
USD 1.511
----
EUR
---------------------
GBP
7.55(difference)
|
|
It also means the YIELD PER PIP at price levels noted
above is USD 8.69.
[Top]
Example USDCHF
Understand how a 1-pip difference (change in the
4th decimal) on USD 100,000 (Base currency) results
in a profit/loss effect of CHF 10 (Counter currency),
| When
USD-CHF 1.5110 changes to 1.5111. |
Converting
the difference of CHF 10 to Dollars, @ USD-CHF
1.5111 the last price traded |
USD
100,000 X CHF 1.2110
------
USD
|
= CHF 121,100 |
CHF
10
----- =USD
8.257
CHF 1.2110 |
| USD
100,000 X CHF 1.2111
------
USD
|
= CHF 121,110
-----------
CHF 10 (difference) |
|
It also means the YIELD PER PIP at price levels noted
above is USD 8.257.
[Top]
Example USDJPY
Understand how a 1-pip difference (change in the
2nd decimal) on USD 100,000 (Base currency) results
in a profit/loss effect of JPY 1000 (Counter currency),
| When
USD-JPY 107.10 changes to 107.11. |
Converting
the difference of JPY1000 to Dollars, @
USD-JPY 1.5111 the last price traded |
USD
100,000 X JPY 107.10
------
USD
|
= JPY 10,710,000 |
JPY
1000
----- =USD
9.33
JPY 107.11 |
| USD
100,000 X JPY 107.11
------
USD
|
= JPY 10,711,000
-----------
JPY 1000 (difference) |
|
It also means the YIELD PER PIP at price levels noted
above is USD 9.33.
[Top]
Example USDMXP
Understand how a 1-pip difference (change in the
2nd decimal) on USD 100,000 (Base currency) results
in a profit/loss effect of MXP 1000 (Counter currency),
| When
USD-MXP 107.10 changes to 107.11. |
Converting
the difference of MXP1000 to Dollars, @
USD-MXP 1.5111 the last price traded |
USD
100,000 X MXP 107.0
------
USD
|
= MXP 10,70,000 |
MXP
1000
----- =USD
93.37
MXP 107.1 |
| USD
100,000 X MXP 107.1
------
USD
|
= MXP 10,71,000
-----------
MXP 1000 (difference) |
|
It also means the YIELD PER PIP at price levels noted
above is USD 93.37
[Top]
Example Gold
Understand how a 10 cents (minimum change) difference
on 100 T.Oz (troy ounce) of Gold results in a profit/loss
effect of USD 10. The change is from USD 325.50 per
T.Oz to USD 325.60 per T.Oz.
USD
325.50 x 100 T.Oz
-------------
= USD 32,550
T.Oz
|
| USD
325.60 x 100 T.Oz
-------------
= USD 32,560
T.Oz
---------------------
USD 10
(difference) |
|
It means the YIELD PER CENT at any price is always
fixed at USD 0.01
[Top]
Example for Silver
Understand how a difference of 1-cent on 5000 T.Oz
(troy ounce) of Silver results in a profit/loss effect
of USD 500. The change is from USD 4.80 per T.Oz to
USD 4.81 per T.Oz.
USD
4.80 x 5000 T.Oz
--------
= USD 24,000
T.Oz
|
| USD
4.81 x 5000 T.Oz
--------
= USD 24,050
T.Oz
---------------------
USD 50
(difference) |
|
It means the YIELD PER CENT at any price is always
fixed at USD 50.
[Top]
The Bank for International
Settlements (BIS)
The Bank for International Settlements (BIS)
is an international organisation which fosters
international monetary and financial cooperation
and serves as a bank for central banks. The BIS
fulfils this mandate by acting as:
-
A
Forum to promote discussion and facilitate Decision-making
processes among central banks and
with the international financial and supervisory
community;
- A Centre for Economic and Monetary Research;
- Agent or Trustee in connection
with International Financial Transactions; and
- Agent or Trustee in connection with International
Financial Operations.
This profile briefly describes the BIS and its
work. For more detailed information, see the BIS
website.
About the BIS
The head office is in Basel, Switzerland and there
are two representative offices: in the Hong Kong
Special Administrative Region of the People’s
Republic of China and in Mexico City. Malcolm
D Knight is General Manager and the Deputy General
Manager is André Icard. The heads of the three
main departments are Gunter D Baer (General Secretariat),
William R White (Monetary and Economic Department)
and Robert D Sleeper (Banking Department). Mario
Giovanni is General Counsel. 526 staff from 44
countries works at the BIS. Established on 17
May 1930, the BIS are the world's oldest international
financial organization.
The three most important decision-making bodies
within the Bank are:
-
The
General Meeting of Member Central Banks;
- The Board of Directors; and
- The Management Committee, composed
of Senior Bank Officials
Held within four months of the end of the Bank’s
financial year, 31 March, the Annual General Meeting
(AGM) is the largest BIS gathering of central banks.
In 2002, 105 central banks attended, 81 at Governor
level. Seventeen international institutions also
attended.
Member central banks
Forty-nine institutions currently have rights of
voting and representation at General Meetings: the
central banks or monetary authorities of Argentina,
Australia, Austria, Belgium, Bosnia and Herzegovina,
Brazil, Bulgaria, Canada, China, Croatia, the Czech
Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hong Kong SAR, Hungary, Iceland, India,
Ireland, Italy, Japan, Korea, Latvia, Lithuania,
the Republic of Macedonia, Malaysia, Mexico, the
Netherlands, Norway, Poland, Portugal, Romania,
Russia, Saudi Arabia, Singapore, Slovakia, Slovenia,
South Africa, Spain, Sweden, Switzerland, Thailand,
Turkey, the United Kingdom and the United States,
plus the European Central Bank.
Board of Directors
The Board of Directors, chaired by Nout Wellink,
President of the Netherlands Bank, has 17 members.
Its six ex officio directors are the central bank
Governors of Belgium, France, Germany, Italy and
the United Kingdom and the Chairman of the Board
of Governors of the US Federal Reserve System; each
appoints another member of the same nationality.
The BIS Statutes also provide for the election to
the Board of a maximum of nine Governors of other
member central banks. The central bank Governors
of Canada, Japan, the Netherlands, Sweden and Switzerland
are currently elected members of the Board.
Committees and secretariats
Several committees and organizations focusing on
financial stability and the international financial
System have secretariats at the BIS and interact
closely with the Bank.
Those which were set up by, and report to, the Group
of Ten central bank Governors are the Basel Committee
on Banking Supervision, the Committee on Payment
and Settlement Systems, the Committee on the Global
Financial System and the Markets Committee.
[Top]
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