Intervention Strategies in Foreign Exchange Market

2020 ◽  
Vol 58 (3) ◽  
pp. 381-399
Author(s):  
Vesna Martin
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Financial Stability ◽  
Foreign Exchange Market ◽  
Foreign Currency ◽  
Supply And Demand ◽  
Central Banks ◽  
Intervention Strategies ◽  
Exchange Market ◽  
The Impact

Abstract The goal of the paper is to present the intervention strategies used by central banks in order to influence the value of the domestic currency, transparency versus discretion when it comes to publishing data about FX intervention and the cost and effectiveness of intervention. It is rarely that nowadays countries allow for an exchange rate to be formed on the market basis through the effects of supply and demand for foreign exchange on the foreign exchange market. The central bank buys or sells a foreign currency in the foreign exchange market in order to increase or decrease the value of its national currency in comparison to the foreign currency. The reasons for the intervention are the reduction of short-term oscillations of the exchange rate, the impact at the level of foreign exchange reserves, as well as the maintaining the price and financial stability as the ultimate goal of most central banks. The paper will present intervention strategies on foreign exchange market, which involves the implementation of interventions in the market of options, forward, foreign currency repo and foreign currency swaps. Then, on the spot market, interventions using an auction, as well as the application of foreign currency indexed certificates.

scholarly journals HEDGING CURRENCY RISKS IN INTERNATIONAL BUSINESS USING THE OPPORTUNITIES OF THE INTERNATIONAL FOREIGN EXCHANGE MARKET

2021 ◽  
Author(s):  
Olena Liegostaieva
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
International Business ◽  
Foreign Exchange Market ◽  
Foreign Currency ◽  
Exchange Market ◽  
Currency Risk ◽  
Exchange Rate Fluctuations ◽  
Current Value ◽  
Financial Result

The article is devoted to the study of currency risk hedging in international business. The article notes that the international foreign exchange market is the largest and fastest growing of all world markets. The characteristic features of the international currency market are substantiated and offered. It is also noted that foreign exchange transactions provide economic ties between participants located on different sides of state borders: settlements between firms from different countries for the supply of goods and services, foreign investment, international tourism and business travel. It is determined that hedging of currency risks is the protection of funds from the unfavorable movement of exchange rates, and is carried out in fixing the current value of funds by concluding an agreement on the foreign exchange market. When hedging, the risk of exchange rate changes disappears, and this makes it possible to forecast the company's activities and see the financial result, which is not distorted by exchange rate fluctuations, which will allow you to determine product prices, calculate profits, etc. The main difference between hedging and other types of transactions is that its purpose is not to generate additional profits, but to reduce the risk of potential losses, as risk reduction is almost always necessary to pay, hedging, of course, involves additional costs. Hedging is a way to improve business planning. An enterprise wishing to use this service shall pledge the specified amount, from which losses on its positions will be deducted. In today's conditions, thanks to the foreign exchange market, there is a very reliable way to hedge currency risk. This method is to fix the current value of funds by concluding agreements in this market. With hedging, the company eliminates the risk of exchange rate fluctuations, and this allows you to forecast activities and see the financial result, which is not changed by exchange rate fluctuations. Allows you to pre-determine product prices, determine profits, etc. Thus, the principle of hedging in international business is to open a currency position in a foreign currency account for future transactions to convert funds.

scholarly journals EXCHANGE RATE - REGIMES AND POLICIES

2014 ◽  
Vol 1 (9) ◽  
pp. 97
Author(s):  
Novak Lučić
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Supply And Demand ◽  
Balance Of Payments ◽  
Direct Impact ◽  
Exchange Market ◽  
Equilibrium Exchange Rate ◽  
Equilibrium Exchange ◽  
Rate Policy

Exchange rate of one currency is theprice of the currency expressed in units of othercurrency. It is formed by the interaction of supply anddemand in the foreign exchange market. Given thatthe exchange rate has a direct impact on thecompetitiveness of a country in terms of features of itsexports and imports, in its balance of payments, andindirectly the overall economic and socialdevelopment, in addition to acting in marketprinciples - supply and demand in the formation ofthe equilibrium exchange rate, exchange rate issubject to different, stronger or weaker, more or less,forms of intervention. In the search for the optimalexchange rate policy of the national currency, themonetary authorities are positioned between the twoextremes - the complete abandonment of theexchange rate to the market laws of supply anddemand, or fixing the exchange rate for any of theselected anchor currency.

scholarly journals How could we observe change of the exchange rate? Review of selected factors of influence on foreign exchange market

Revizor ◽  
2020 ◽  
Vol 23 (91-92) ◽  
pp. 77-85
Author(s):  
Milorad Stamenović ◽  
Sanja Jelisavac-Trošić
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Risk Exposure ◽  
Exchange Market ◽  
Management Measures ◽  
Factors Of Influence ◽  
The Exchange Rate ◽  
The Impact ◽  
Significant Factors

This paper defines the participants in the international foreign exchange market and the influence of natural, political, and economic factors on the movement of the exchange rate, and analysis of circumstances that may contribute to the change of the exchange rate. The paper aims to present the analysis of the exchange rate through macroeconomic phenomena and define the factors influencing the change in the exchange rate and the impact on the work of participants in that process. As risk management measures can prevent the influence of significant factors defined in the paper, measures, and types of risk exposure are determined.

scholarly journals How Powerful Is Unannounced, Sterilized Foreign Exchange Intervention?

2021 ◽  
Author(s):  
Alain Naef ◽  
Jacob Weber
Keyword(s):  
Exchange Rate ◽  
Money Supply ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Central Banks ◽  
Exchange Market ◽  
Foreign Exchange Intervention ◽  
Bretton Woods ◽  
Bank Of England ◽  
Sterilized Foreign Exchange Intervention

Though most central banks actively intervene on the foreign exchange market, the literature offers mixed evidence on their effectiveness: particularly for unannounced interventions. We use new, declassified data from the archives of the Bank of England and the institutional features of the Bretton Woods era to estimate the effects of intervention on the exchange rate. We find that a purchase of pounds equivalent to 1% of the money supply causes a statistically significant, 4-5 basis point appreciation in the pound.

scholarly journals New hybrid fuzzy time series model: Forecasting the foreign exchange market

2020 ◽  
Vol 66 (3) ◽  
pp. 263
Author(s):  
José Eduardo Medina Reyes ◽  
Salvador Cruz Aké ◽  
Agustín Ignacio Cabrera Llanos
Keyword(s):  
Time Series ◽  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Foreign Currency ◽  
Time Series Data ◽  
Arima Model ◽  
Fuzzy Time Series ◽  
Series Data ◽  
Exchange Market

<span class="fontstyle0">This paper develops the comparison of the volatility prediction of the traditional<br />models (ARIMA, EGARCH, and PARCH), with respect to the Hybrid Fuzzy Time<br />Series and Fuzzy ARIMA Model of Tseng’s and Tanaka’s methodology (FTS-Fuzzy<br />ARIMA Tseng and FTS-Fuzzy ARIMA Tanaka). For this purpose, it applies to the<br />time series of the foreign exchange market to forecast the foreign currency exchange rate of Mexican Pesos against American Dollar, the growth rate of the time series data in a daily format from January 2008 to December 2017, to perform the sample test is used January 2018. The main result is that the models based on fuzzy theory generate a better estimate of the volatility of the foreign exchange rate.</span> <br /><br />

scholarly journals Foreign Exchange Market Intervention and Exchange Rate Stability: An Empirical Anayisis for Nigeria

2021 ◽  
pp. 34-45
Author(s):  
E. Adedeji Kayode ◽  
O. Apinran Martins ◽  
I. Awoniyi Bisola
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Series Data ◽  
Exchange Market ◽  
Market Intervention ◽  
The Exchange Rate ◽  
The Impact ◽  
Foreign Exchange Market Intervention ◽  
Exchange Market Intervention

The essential roles played by exchange rate on general macroeconomic stability has attracted the Central Bank of Nigeria (CBN) to intervene in the foreign exchange market, in order to smoothen exchange rate volatility, among other goals. The study to examine the impact of foreign exchange market intervention on stability of exchange rate in Nigeria with a monthly time series data from 2000M1 to 2020M12. The research employs the use of Autoregressive Distributive Lag approach (ARDL) of analysis. The result indicates that the currency interventions policy of the CBN in Nigeria is effective and exerts significant impact on the exchange rate stability of Naira in both in the short and long-run within the period under investigation. We, therefor, recommend that the monetary authority should continue to employ the usage of stock of foreign reserves in supporting the exchange rate by increasing funding of the operations in foreign exchange market.

scholarly journals The microstructure of foreign exchange rate and foreign exchange rate formation

2005 ◽  
Vol 50 (164) ◽  
pp. 63-79
Author(s):  
Vladimir Vuckovic
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Market Microstructure ◽  
Foreign Exchange Market ◽  
Foreign Currency ◽  
Stock Exchange ◽  
Foreign Exchange Rate ◽  
Exchange Market ◽  
Market Participants ◽  
Essential Question

The subject matter of market microstructure analysis are processes through which investor activities are transferred to quantities and prices. This direction indicates the fact that has been unjustifiably neglected in fundamental theories ? foreign exchange rate results from the interactions between market participants. Spot foreign exchange market can best be described as a decentralised market with a number of dealers. There is no organised physical place (stock exchange) where dealers meet their clients nor is there an electronic system which enables quotations of all dealers in a currency market to be simultaneously shown on the screen. The theory of order flows has resulted from the answer to the essential question of market microstructure: do trading mechanisms affect the price formation process of the trading subject, and how do they affect it. Information is scattered and not available to all subjects in an aggregate form, which is the consequence of a decentralised structure, lack of regulations and nontransparent trading on the foreign exchange market. In such a setting, market participants are incessantly aggregating signals based on scattered information, and no sooner than collective orders for foreign currency sales and purchases are formed do they build into the foreign exchange rate in the process of new information trading. are a good explanation for changes in the foreign exchange rate. Several studies have shown that order flows.

scholarly journals Relationship between Exchange Rate and Reserves in EAEU Countries

2020 ◽  
Author(s):  
Junus Ganiev ◽  
Jusup Pirimbaev ◽  
Damira Baigonushova
Keyword(s):  
Exchange Rate ◽  
Money Supply ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Central Banks ◽  
Flexible Exchange Rate ◽  
Exchange Market ◽  
Rate System ◽  
Eurasian Economic Union ◽  
Exchange Rate System

The Eurasian Economic Union, which was officially established five years ago, faced many financial and economic problems in this period. After 2014, when sanctions against Russia began, all members’ national currency suffered serious depreciation and central banks had to actively intervene in the foreign exchange market. In fact, Russia and Kazakhstan have changed regime and switched from the fixed to the flexible exchange rate system. Since the foreign exchange market has been more stable in recent years, central banks are trying to complete the reserves that had been lost that period. Therefore, with the change of foreign reserves, money supply is also changing. The aim of this study is to examine and compare the relationship between exchange rates, reserves and money supply in five EAEU countries. Quarterly data for the period 2010-2019 was used to achieve the goal. Toda-Yamamoto causality and ARDL cointegration approach were used as a method. It was concluded that more coordinated execution of monetary and exchange rate policies would be in favor of all members. However, the basic principle should be that all members benefit equally from the cooperation.

scholarly journals THE IMPACT OF BALANCE OF PAYMENTS ON MONETARY POLICY

2019 ◽  
Vol 34 (5) ◽  
pp. 1337-1342
Author(s):  
Vesna Korunoska ◽  
Biljana Mitrovic ◽  
Pavle Trpeski
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Currency ◽  
Supply And Demand ◽  
Real Exchange Rates ◽  
Balance Of Payments ◽  
Adjustment Process ◽  
The Exchange Rate ◽  
The Impact

The paper monitors the balance of payments in the Republic of N. Macedonia, which determines the amount of the exchange rate through the supply and demand of foreign currency, as well as the impact of the exchange rate on the balance of payments movements. Real exchange rates are essentially equilibrium exchange rates. exchange rate that will keep the balance of payments in balance without taking measures for foreign exchange control, without pronounced inflation and deflationary tendencies and without constant expectation of monetary and foreign exchange reserves.There are several methods by which balance of payments can be established: by devaluation, by currency control and by deflation. When considering the relationship between the national currency exchange rate and the balance of payments of a national economy in terms of their interconnections, one should depart from their causal link of impacts. The exchange rate affects the balance of payments, as well as the balance of payments affects the exchange rate.The first part of the paper elaborates in detail the key activities of the balance of payments adjustment and the exchange rate adjustment, as well as their mutual impact.We use the adjustment mechanism to restore balance once the initial equilibrium has been disturbed. The payment adjustment process takes two different forms. One, under certain conditions, has adjustment factors that automatically contribute to balancing. Second, in the event that automatic adjustment fails to strike a balance, the government adopts a discretionary policy to achieve this goal.

scholarly journals CURRENCY MARKET OF KAZAKHSTAN BEFORE AND IN TIME OF PANDEMIA: COMPARATIVE ANALYSIS

2021 ◽  
Vol 81 (2) ◽  
pp. 66-72
Author(s):  
R.E. Yelemesov ◽  
◽  
A.A. Raimbekova ◽  
Keyword(s):  
Comparative Analysis ◽  
Foreign Exchange ◽  
Foreign Exchange Market ◽  
Foreign Currency ◽  
Exchange Market ◽  
Trade Relations ◽  
Global Pandemic ◽  
Financial Transactions ◽  
The Impact ◽  
Exchange Transactions

Settlements in national and foreign currency are made between residents of the republics participating in various international trade relations and capital flows. With the help of foreign assets, various financial transactions are carried out, gold and foreign exchange reserves of the country are formed, some economic norms and indicators are calculated (target earnings of the bank, private capital, etc.). In connection with this, it is necessary to create a developed foreign exchange market, which will allow to increase the volume of foreign exchange transactions. The article provides a comparative analysis of the dynamics of the development of the foreign exchange market in Kazakhstan and the changes caused by the impact of the global pandemic on it.

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