Foreign Exchange in Practice: The New Environment

Foreign Exchange in Practice: The New Environment

Foreign Exchange in Practice: The New Environment

Foreign Exchange in Practice: The New Environment


Foreign Exchange in Practice, now in its 3rd edition, is the single reference to the foreign exchange market any financial practitioner needs to have. It explains the concepts involved in foreign exchange and their application to real-life situations. The book was originally developed as a textbook for the Citibank Bourse Course, an intensive course available to clients and staff of Citibank to improve their mastery of these complex markets. The course has been taught in 50 countries since 1975. This new edition includes the Euro amongst its currencies, expansion of material on interest rate concepts, exotic options and value at risk.


This book is written for participants in the foreign exchange market. It attempts to explain the concepts involved in foreign exchange and the application of these concepts to a large number of day-to-day situations. Numerous worked examples appear in the text, and practice problems are set out at the end of each chapter to enable the student to test her or his understanding. The solutions to the practice problems appear in the Appendix.

The first edition of this book was written as a textbook for the Citibank Bourse Course. The Bourse Course is a course on foreign exchange markets and is based around a simulation game. Some of the examples in this book refer to the fictitious currencies used in the Bourse Game.

A recurring theme throughout the book involves the interrelationship between interest rates and exchange rates. These two markets are inextricably linked. Changes in interest rates cause changes in exchange rates and vice versa. The pricing of forward exchange rates and currency options depends on the interest rates of the two currencies. Accordingly, considerable attention is given to interest rates, particularly in Chapter 2 and Chapter 4.

Two other themes that recur throughout the book are that arbitrage forces equilibrium pricing and that break-even rates occur where the two alternatives have equal value.

Preface to the third edition

The first edition was published in 1989 and the second edition in 1997. Examples in the earlier editions use rates that prevailed at the time. The 3rd edition covers a substantial amount of new subject matter including more financial mathematics, interest rate swaps and expanded discussion on exotic options. Examples have been updated to reflect rates at the time of writing and the introduction of the euro.

June 2002
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