Year 2 · Core Finance · Markets & Instruments
FX & International Finance
Master currency quotations, cross rates, spot and forward FX, covered interest parity, FX swaps, international investment returns, corporate hedging, carry and the macro forces that move currencies.
LEARNING OBJECTIVES
What you should be able to explain after this lesson
01
Read base/quote currency conventions and bid-ask FX quotes.
02
Calculate appreciation, depreciation, reciprocals and cross rates.
03
Explain spot, forwards, forward points, FX swaps and covered interest parity.
04
Measure unhedged international investment returns and currency contribution.
05
Design basic corporate and portfolio currency hedges.
06
Connect rates, inflation, growth, capital flows, risk sentiment and central banks to FX.
CONCEPT MAPFrom currency quote to FX risk decision
An exchange rate is the price of one currency in another
CORE FACTS · SAME IN EVERY MODE
In EUR/USD = 1.1000, EUR is the base currency and USD is the quote currency.
EUR/USD = 1.1000 means one euro buys 1.10 US dollars.
If EUR/USD rises, EUR appreciates versus USD; if it falls, EUR depreciates versus USD.
The reciprocal quote is obtained by inversion, ignoring bid-ask complications.
BeginnerTeaching style changes, knowledge does not.
Think of the first currency as the product and the second as the price tag. EUR/USD tells you how many dollars you need for one euro.
FORMULAFX percentage change
% change = (New quote / Old quote − 1) × 100The sign describes the base currency versus the quote currency.
Worked example
EUR/USD from 1.0800 to 1.1016: 1.1016 / 1.0800 − 1 = +2.0%.
PROFESSIONAL VOCABULARYBase currency / devise de base Quote currency / devise de cotation Pip / pip
The first currency in an FX pair.
The currency used to price one unit of the base currency.
A standard small unit of change in an FX quote.