FOREIGN EXCHANGE RATES

Foreign exchange rates are never stable. They move, and sometimes with dramatic rapidity.
A nominal exchange rate move is the total observed movement in the exchange rate. A real exchange rate move is the nominal rate movement adjusted for the differential in inflation.

Forex Operations

To conduct international payments banks maintain sufficient working balances in all maior currencies.
Dealers are the people who are directly involved with day-to-day dealing in foreign exchange, the buying and selling of one currency for another at an agreed rate for delivery on specific dates into specific accounts in specified centres. They close out short and lone positions through purchases and sales and deal with profits and risks of foreign currency trading.

Forex Forecasting

Forecasting of foreign exchange rates movements is not a science but an art. But there are some approaches that yield good results. The dealer must always be in the picture of bond, commodity and equity market developments. Changes in interest rates and pending deals bring about forex movements.
Market sentiment may change the situation very quickly.
Economic and financial indicators must be constantly watched to take timely decisions.
In the former days domestic considerations were of paramount importance now markets are driven by both domestic and international events. Market rumours usually precede upcoming political and economic events. If a rumour is credible the market acts accordingly and the event itself may not produce any changes in the market situation. This process is reflected in the saving «Buy the rumour, sell the fact».
Economic growth is facilitated by stable prices. The latter is the concern of central banks, which posses considerable financial resources and can reduce volatility if markets get carried away.
Limited central bank intervention at the right time may turn the market.
Vocabulary*

ei

stable -
постоянный
i

rapidity —
быстрота
л

to adjust —
приспосабливать
л

adjustment -
регулирование
e

differential -
разница
i: to 'yield results -
давать результаты
ou

approach -
- подход
working balance — «рабочие» остатки средств на

счетах, средства для
обеспечения повседневной
деятельности
to close out
- закрыть позицию
short position
- «короткая» позиция
long position
- «длинная» позиция
0:

to forecast
- предсказывать,
прогнозировать

to be in the

picture
- быть в курсе событий
e equity (market) -
- капитал, акции, фондовый
рынок

bond
- облигация
commodity
- товар
e sentiment
- настроение
as

paramount
- высший, первостепенный
i:

to precede
— предшествовать
*3десь и далее значения слов взяты из контекста.


The customer takes up positions in foreign exchange by his expectations as to future rate trends. These expectations are influenced by the extremely large number of factors. The latter can be divided up systematically into fundamental and technical factors.

e

'credible
— стоящий доверия
Э:

volatility
- колебание
ae

To carry away
— отклоняться

Comprehension Questions

1. What is the difference between a nominal and real exchange rate?
2. Why is the forecasting of forex rates moves so difficult?
3. What approaches in forex forecasting yield good results?
4. What events drive financial markets nowadays?
5. What market rumours should be taken into account?
6. Why do stable prices facilitate economic growth?
7. How can central banks influence financial markets?
8. What is the customer guided by in taking forex decisions?

Exercises

Ex. 1. Put questions to the underlined words.
Ex. 2. Point out verbal constructions and state their syntactical function in the sentence.
Ex. 3. Read and translate the text.
Ex. 4. Translate this dialogue from English into Russian in writing and from Russian into English orally.

Dialogue

Client: What is the meaning of real exchange fate?
Broker: Inflation changes nominal exchange rate. If British inflation has been 10 percent over the past year, while German inflation has been 0 percent, the pound sterling devalues against the mark by 10 percent.
Client: But the nominal rate does not reflect this change. Does it?
Broker: No it doesn't. We do not sell it. But it takes 10 percent more pounds to buy a mark, 10 percent more pounds to buy a coat in England because of 10 percent inflation there.


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