2.11 Foreign Exchange Rate Risk: Appreciation and Depreciation

At first glance it may seem irrelevant which way an exchange rate is expressed. However, it is important because the words appreciation and depreciation of a currency are used in the market, and this may be confusing if the wrong method is used. If the USD/ZAR...

2.16 Fees Associated with Forex Investments

A. Broker fees The services of a broker, who is registered with the JSE as an authorised user, are required in order to trade forex on-exchange. Brokers charge a commission or brokerage fee (calculated as a variable percentage of the value of the transaction) for...

2.15 Hedging Versus Speculating in the Foreign Exchange Market

Speculation involves trying to make a profit from an asset’s price change, whereas hedging attempts to reduce the amount of risk, or volatility, associated with an asset’s price change. Hedging usually involves taking an offsetting position in a derivative to balance...

2.14 Fundamental Versus Technical Analysis

Fundamental analysis involves basing investment decision-making on the fundamental expected cash flows of a bond or equity. In the case of forex, the fundamental analysis would be related to weighing up the various interrelated economic factors that will ultimately...

2.13 Theories of Exchange Rate Determination

A. Purchasing power parityPurchasing power parity (PPP) is the theoretical relationship between the current spot rate and the expected future spot rate via inflation differentials. Since inflation rates and the expected future spot rate do not trade in financial...