Text 18. How Is Foreign Exchange Traded?

Foreign Exchange Market is a twenty-four hour market. In financial centers around the world, business hours overlap; as some centers close, others open and begin to trade. The foreign exchange market follows the sun around the earth. The international date line is located in the western Pacific, and each business day arrives first in the Asia-Pacific financial centers- first Wellington, New Zealand, then Sydney, Australia, followed by Tokyo, Hong Kong, and Singapore. A few hours later, trading begins in Bahrain and elsewhere in the Middle East. Later still, when it is late in the business day in Tokyo, markets in Europe open for business. Subsequently, when it is early afternoon in Europe, trading in New York and other U.S. centers start. Finally, completing the circle, when it is mid- or late-afternoon in the United States, the next day has arrived in the Asia-Pacific area, the first markets there have opened , and the process begins again.

You cannot go to a centralized location to watch exchange rates being determined; currencies are not traded on exchanges such as the New York Stock Exchange. Instead, the foreign exchange market is organized as an over-the-counter market in which several hundred dealers (mostly banks) stand ready to buy and sell deposits denominated in foreign currencies. Because these dealers are in constant telephone and computer contact, the market is very competitive; in effect, it functions no differently from a centralized market.

An important point to note is that while banks, companies, and governments talk about buying and selling currencies in foreign exchange markets, they do not take a fistful of dollar bills and sell them for British pound notes. Rather, most trades involve the buying and selling of bank deposits denominated in different currencies. So when we say that a bank is buying dollars in the foreign exchange market, what we actually mean is that the bank is buying deposits denominated in dollars. The volume in this market is colossal, exceeding $1 trillion per day.

Trades in the foreign exchange market consist of transactions in excess of $1 million. The market that determines the exchange rates is not where one would buy foreign currency for a trip abroad. Instead, we buy foreign currency in the retail market from dealers such as American Express or from banks. Because retail prices are higher than wholesale, when we buy foreign exchange, we obtain fewer units of foreign currency per dollar than exchange rates in the box indicate.

Exercise 129. Complete the sentences according to text 18.

1. In financial centers around the world, business hours … . 2. The international date line is located in … . 3. The foreign exchange market is organized as … . 4. Most trades involve the buying and selling of bank deposits… . 5. Trades in the foreign exchange market consist of … . 6. … we obtain fewer units of foreign currency per dollar than exchange rates in the box indicate.

Exercise 130. Compose a dialogue on “Foreign Exchange”.

Exercise 131. Learn the following words and word combinations.

letter of credit	акредитив
documentary credit	документарний акредитив
sales transaction	торгівельна угода
international chamber of commerce	міжнародна торговельна палата
shift risks	перекласти ризики
applicant	заявник, прохач
beneficiary	бенефіціарій, отримувач по акредитиву
scrutinize	- ретельно досліджувати, перевіряти
issuing bank	банк, який виставляє акредитив
advising bank	авізуючий банк; банк, що направляє повідомлення
bill of lading	коносамент; транспортна накладна
airway bill	авіанакладна
certificate of origin	свідоцтво про походження (товару, вантажу)
inspection certificate	акт догляду, свідоцтво про догляд
commercial invoice	рахунок-фактура
revocable	відкличний, який може бути відкликаний (анульований, скасований, взятий назад)
irrevocable	невідкличний
sight L/C	акредитив, що дає право виставляти на банк тратти, термінові по пред'явленні

Exercise 132. Read, translate and give the gist of text 19.