5. What is the source of most profits and losses on foreign exchange trading? What foreign...

5. What is the source of most profits and losses on foreign exchange trading? What foreign currency activities provide a secondary source of revenue?

Solutions

Expert Solution

The sources of profits and loss on foreign exchange trading is the variation in the underlying foreign exchange rates away from the price at which the buy or sell was made which allows an investor to make profit. For example, if an forex trader in India buys US dollar when the exchange rate was 1 USD = 65 Indian Rupees and after completion of the trade, the Dollar strengthens that is the exchange rate becomes 1 USD = 69 Indian Rupees, then the forex trader has gained 4 Indian Rupees for each Dollar purchased.

Thus the forex variation is the source of gain or loss in the case of forex trading.

The foreign currency buying or selling in an foreign currency exchange or buying or selling of derivatives on the underlying currency pairs can be a source of secondary income or revenue. Also any favourable movement of the currency in case of multinational corporations can lead to translational gains when multiple currencies are involved.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Which of the following is not a source of supply for AUD in the foreign exchange...

Which of the following is not a source of supply for AUD in the foreign exchange market? a. imports of goods and services b. income payments to overseas c. central bank sales of AUD d. financial capital inflow Important: please explain your answer properly. Please also explain why other options are not correct.

1. In an open economy, what is the source of supply in the foreign-currency exchange market?...

1. In an open economy, what is the source of supply in the foreign-currency exchange market? A. Net exports B. Exports C. Investment and Net Capital outflow D. Net Capital outflow Next question::: 2. When there is a budget deficit, will net exports increase or decrease? Next question::: 3. You have just been hired by the Canadian government to analyze the following scenario. Suppose the Canadian pharmaceutical industry is concerned with foreign prescription drug producers exporting...

What is foreign exchange risk? What are the causes of foreign exchange risk and what actions...

What is foreign exchange risk? What are the causes of foreign exchange risk and what actions would you take as a financial manager to mitigate the risk?

In cross border trades,it is likely to make (incur)foreign exchange gains (losses)due to foreign currency fluctuation...

In cross border trades,it is likely to make (incur)foreign exchange gains (losses)due to foreign currency fluctuation . How would you describe this scenario?

What are the 5 major segments of the foreign exchange market? Please, make suer that 5...

What are the 5 major segments of the foreign exchange market? Please, make suer that 5 segments, thanks?

Write a report to explain the impact on Covid- 19 on the foreign exchange trading movement...

Write a report to explain the impact on Covid- 19 on the foreign exchange trading movement in Mauritius

In February 2020, the US dollar was trading on the foreign exchange market at 0.88 euros...

In February 2020, the US dollar was trading on the foreign exchange market at 0.88 euros per US dollar, and today the US dollar is trading at 0.83 euros per US dollar. how will trading between the two countries be effected?

what is the impact of exchange rate on trading?

why analysts might remove foreign exchange gains or losses when analyzing revenue and expenses for the...

why analysts might remove foreign exchange gains or losses when analyzing revenue and expenses for the year.

Follow the trading strategies in the lecture to profit from spatial arbitrage in foreign exchange markets....

Follow the trading strategies in the lecture to profit from spatial arbitrage in foreign exchange markets. Assume zero transaction cost for the traders. (£–British pound. $–U.S. dollar. ¥–Japanese yen) 1) Bilateral arbitrage. London: 1£=2$. New York: 1£=2.1$. How to profit from $100? What are the profit and the rate of return? How to profit from L1000? What is the profit rate? 2) Triangular arbitrage. London: 1£=2$. New York: 1$=120¥. Tokyo: 1£=200¥. How to profit from 1£? What is the profit...

Subjects