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Рік заснування видання - 2014

FOREIGN EXCHANGE TRANSACTIONS AND ITS TYPES

25.05.2021 19:35

[Section 6. Banking. Money, finances and credit]

Author: Kravchuk Roman Serhiyovych, candidate of Economic Sciences, IHE "King Daniel University"


In practice, all foreign exchange transactions are divided into three types: current transactions, currency exchange transactions and capital transactions.

Current operations include:

a) current trade transactions;

b) current non-trading transactions.

Currency transactions related to capital movements include: granting and receiving financial loans and borrowings by residents; transactions related to the fulfillment of obligations under guarantees, sureties and collateral, leasing and factoring; making direct investments in Ukraine; making direct investments by residents outside Ukraine; making portfolio investments in Ukraine; implementation of portfolio investments by residents outside Ukraine; payment of profits, income and other funds received by foreign investors from direct investments and securities of Ukrainian issuers placed among non-residents, etc.

Currency exchange transactions include such transactions as the purchase of cash foreign currency for cash hryvnias from individuals - residents and non-residents; sale of cash foreign currency to individuals - residents for cash hryvnias; reverse exchange of unused cash hryvnias for cash foreign currency by individuals - non-residents; conversion (exchange) of cash foreign currency of one foreign state into cash foreign currency of another foreign state [1].

Settlements for international transactions between participants are made through banks, for which foreign exchange transactions are one way to generate income.

When concluding purchase and sale agreements in the foreign exchange market, the following types of exchange rates are used: cross-rate, spot rate, forward rate.

A cross-rate is a ratio between two currencies that is established from their exchange rate relative to the rate of the third currency.

Spot rate - the rate of purchase and sale of currency, at which the exchange of currencies between the parties is carried out within two working days from the date of the transaction.

Forward rate - the price set by the parties at the time of the agreement at which the currency will be sold or bought at a certain time in the future. Thus, when concluding such agreements, the parties try to predict the level of the exchange rate.

In the foreign exchange market using different types of exchange rates are such types of transactions as cash and futures.

Cash transactions are carried out on a spot basis, which includes three types of transactions that are executed no later than the second business day of the date of their conclusion. A “spot” agreement is an agreement to buy or sell a certain amount of currency on the second business day at the seller's spot rate [2].

Term (forward) transactions are transactions in which entities acquire the right to buy or sell a certain amount of currency in the future. These include options, forwards, swaps, and futures.

An option is an agreement that entitles its buyer (but does not oblige) it to buy or sell a specified amount of foreign currency at a fixed rate on a specified date or for a specified period in the future.

Forward agreements arose as a form of insurance in foreign trade operations. There are also futures and transactions and currency arbitrage.

Each currency arbitrage can be both simple and complex. Simple arbitration is performed with two currencies, complex (cross-rate) - with three or more.

Literature:

1. Budnik M. M. Financial market: textbook way. К.: Centre of educational literature, 2009. 336 p.

2. Vasyurenko O.V. Banking operations: textbook way for universities. K., 2008. 318 p.



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