Subject Outline

This subject provides students with a broad knowledge of the workings of the foreign exchange market including the structure of the market, principal participants and the products most widely used for managing risk and/or trading for profit. Students will gain a working knowledge of the mathematical calculations underlying market transactions including spot, forwards and currency options. This will enable students to identify and assess foreign currency risk and/or opportunity, and evaluate the different products suitable for management of FX exposures as used by banks and corporates. The subject concludes with a broad coverage of the accounting and taxation aspects of foreign exchange transactions.

2008 Availability

Trimester 2

Study Modes

Lectures and distance education

Assessment Method and Weighting

• Assignment 40%
• Examination 60%

ASIC Recognition

This subject has been recognised in the ASIC register under Policy Statement 146.

Resource requirements

• Calculator
• Internet access

• Financial Markets and Economics (C1)

Learning outcomes

On successful completion of this subject students will be able to:

• outline the structure of the global foreign exchange market, the principal participants, and the future direction of product delivery
• identify foreign exchange exposures for corporates and banks and differentiate their use of foreign exchange risk management techniques
• describe fundamental foreign exchange exposure hedging techniques
• evaluate and calculate market risks and exposures for foreign exchange products
• demonstrate the applications of foreign currency options
• identify the accounting and taxation implications of a foreign exchange transaction.

Content

• The foreign exchange market
• Spot transactions
• The foreign exchange forward market
• Forward transactions — applications
• Foreign currency borrowings
• Foreign currency options
• Foreign exchange risk management
• Foreign currency controls, accounting and taxation