There must be very few traders indeed now who are not aware that the Forex market is the largest, most liquid and most volatile financial market in the 21st century ? these facts are mentioned so often and so consistently that it is hard not to have heard them said or written somewhere before. This is for good reason too ? they cannot be escaped. Although we may have heard these facts trumpeted so many times before this does not undermine their importance, or the importance of the foreign exchange market.
It is true to say that this is one of the most exciting financial markets for traders and also one of the most important markets for those ? central banks, governments and business leaders ? who run our economies. Foreign exchange provides an opportunity for traders and speculators and, on the other side, the management of exchange rates is a central part of countries? economic performance and the political landscape. This is even more relevant now than ever before because in recent years the volatility of the FX market has been especially pronounced, which has presented quandaries for investors, companies and governments alike.
Taking this as a starting point and essential underpinning, so it is that this brand new book ? Foreign Exchange: The Complete Deal ? has been written. Here, author James Sharpe, a foreign exchange practitioner with more than 30 years' experience, provides a thorough and comprehensive guide to the Forex market and how it is traded. An attempt is made to leave no stone unturned as every important topic from the history of exchange rate systems through to the tools that analysts use to read the market is covered. Sharpe runs through everything from the theoretical to the practical; the theory is explained in early chapters and then later practical chapters give a clear understanding of the issues and processes involved in foreign exchange transactions.
This book begins with an exploration of the historical and theoretical background to the markets as they exist today. As Sharpe explains, to understand the foreign exchange systems in the 21st century we need to see where we have come from and why. The transition from a fixed exchange rate system to a floating system is examined, with a run through of what fixed, floating and adjustable peg exchange rate systems are, how all systems have their flaws, and how the situation has developed such that a floating rate system is the one most widely adopted now. There is a special focus on the UK in this opening chapter, covering foreign exchange in this country in detail from the 1960s to present day.
Further theoretical underpinnings of the foreign exchange markets follows, with coverage given to the processes that determine exchange rates ? such as supply of and demand for currencies, central bank interventions and government policy. Particular attention is paid to the influence interventions by central banks have on the market. These interventions are transactions by the banks deliberately intended to influence the exchange rate ? they involve the sale or purchase of domestic currency for foreign currency in the market and the transactions run into millions of dollars. IT is important that all those who want to understand the foreign exchange markets get a grasp of these interventions.
The focus then moves to foreign exchange in practice, the core of the book. Topics covered include: how price quotations are created and presented; cross rates; the range different transactions available ? including spot, forward, broken date, non-deliverable forwards (NDFs), swaps and options ? and how they are calculated; how foreign exchange exposures are hedged; and how professional traders analyse the market, including a look at technical analysis patterns.
The central chapter of the book comes within this practical section and it deals with the variety of ways that foreign exchange can be traded, i.e. the transactions that are available. For each of these the author gives logical and detailed worked examples for how real businesses and traders can use the transaction and shows the calculations and processes involved. The level of technical detail is impressive and those who wish to gain an in-depth understanding of how professionals trade foreign exchange will find it fascinating.
Interestingly, the book ends with a concession that the foreign exchange markets are somewhat chaotic ? exchange rate stability is acknowledged as a distant dream. Even so, this is just what makes FX such a field of opportunity for those who trade it.
This thorough, technical guide is recommended for those who want to understand more about the commercial realities of currency trading and hedging, and the complete world of foreign exchange.