Foreign Exchange Markets and Rates of Return

This section discusses how to calculate spot rates, forward rates, cross rates, and rates of return, along with other key rates in foreign exchange markets. What are the components of the rate of return on a foreign deposit?

Foreign Exchange Markets and Rates of Return

People trade one national currency for another for one reason: they want to do something with the other currency. What they might do consists of one of two things: either they wish to spend the money, acquiring goods and services, or they wish to invest the money.

This chapter introduces the foreign exchange market for currency trades. It highlights some of the more obvious, although sometimes confusing, features and then turns attention to the motivations of foreign investors. One of the prime motivations for investing in another country is because one hopes to make more money on an investment abroad. How an investor calculates and compares those rates of returns are explored in this chapter.

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