The process of international settlement

A Nation`s National Bank B Nation`s National Bank

A Nation`s Local Bank B Nation`s Local Bank

A Nation`s Import Company B Nation`s Export company

The structure of foreign exchange market

Interbank marketCentral bank Broker

Bank

Firm, public, government, etc

Calculation of Spot rates

• Condition: GBP/USD 1.5800/10;

USD/EUR 0.9120/30;

USD/JPY 121.45/75

Problem 1: What is the buying rates between USD/EUR

0.9120

Problem 2: What is the selling rates between USD/JPY

121.75

Problem 3:A firm would have EUR against 100 million GDP, how much can the firm get

1.5800 * 0.9120 * 100M = 1.4410 *100M EUR.

Problem 4: how much can the firm get JPY against 100M EUR

121.45/0.9130 *100m = 133.13 * 100M EUO