Usd/jpy 116. 09/13

LEARNING OBJECTIVES

After studying this unit, you should be able to:

· examine topics and subtopics and predict content related to the functioning of the foreign exchange market;

· apply reading skills to comprehend, analyze, and interpret texts related to the organization and functions of the foreign exchange market, classification and characteristics of its participants, the peculiarities of hedging instruments (i.e. recognize main ideas in paragraphs, definitions, explanations, examples, classifications, comparisons and contrasts, sequence of events, cause / effect, pros and cons);

· use strategies to reinforce comprehension skills (i.e. cite evidence for main ideas, answer literal and critical comprehension questions);

· identify the main ideas, recall important details of a listening segment pertaining to the foreign exchange market, take notes from spoken context as well as relate new information to previously acquired concepts;

· give spontaneous and prepared monologs, dialogs, and group interaction using topical vocabulary;

· summarize, annotate, render and translate texts related to the issues covered in the unit.

Exercise 1. Comment on the following quotations. What do the authors mean? Do you agree with them?

1. “Having a surplus is allowing us to intervene in the exchange market and support an exchange rate we deem convenient.”(Carlos Moss)

2.“Under the floating exchange rate system, the initiative to take on speculators is in the hands of the central bank, while under the fixed exchange rate system, the initiative is actually in the hands of speculative capital.” (Ba Shusong)

Exercise 2. Read the text.

The Fundamentals of the Foreign Exchange Market

The trading of currency and bank deposits denominated in particular currencies takes place in the foreign exchange market. The Foreign Exchange market, also known as the “Forex” or “FX” market, is the largest financial market in the world. The volume of these transactions worldwide averages over $1 trillion daily.

The FX market is considered an over-the-counter or “ interbank” market in which several hundred dealers (mostly banks) stand ready to buy and sell deposits denominated in foreign currencies. It has no central trading location and the transactions are conducted over the telephone or via an electronic network.

The foreign exchange market consists of two tiers: the interbank or wholesale market, and the client or retail market. Individual transactions in the interbank market usually involve large sums. By contrast, contracts between a bank and its client are usually for specific amounts, sometimes down to the last penny. There are plenty of participants in the Forex.

Foreign exchange dealersare banks, and a few nonbank foreign exchange dealers that operate in both the interbank and client markets. They profit from buying foreign exchange at a bid price and reselling it at a slightly higher ask price. This difference is known as the spread. Dealers in the foreign exchange departments of large international banks often function as market makers. They stand willing to buy and sell those currencies in which they specialize by maintaining an inventory position in those currencies. Participants in commercial and investment transactions, for example importers and exporters, international portfolio investors, multinational firms, tourists etc. use the foreign exchange market to facilitate execution of commercial or investment transactions. Some of these participants use the foreign exchange market to hedge foreign exchange risk. Speculators and arbitragers seek to profit from trading in the market and operate in their own interest. Speculators seek all of their profit from exchange rate changes. Arbitragers try to profit from simultaneous exchange rate differences in different markets. Central banks and treasuries use the market to acquire or spend their country's foreign exchange reserves as well as to influence the price at which their own currency is traded. Foreign exchange brokers are agents who facilitate trading between dealers. For this service, they charge a small commission, and maintain access to hundreds of dealers worldwide via open telephone lines. It is a broker's business to know at any moment exactly which dealers want to buy or sell any currency. This knowledge enables the broker to find a counterpart for a client quickly.

The largest money center banks headquartered in New York, London, Tokyo, and other financial capitals of the world not only maintain large inventories of key foreign currencies, but also trade currencies with each other through an exchange of deposits. For example, if a major US bank needs to acquire pounds sterling, it can contact a correspondent bank in London and ask that bank to deliver an additional amount of sterling to the US bank’s correspondent account. In turn, the US bank will increase the dollar denominated deposit held with it by the London bank. In this way money never really leaves the country of its origin; only deposits denominated in various currencies have their ownership transferred from one holder to the next.

The central institutions in modern FX markets are commercial banks with their foreign exchange departments responsible for dealing with and managing the purchase and sale of foreign currencies. Foreign exchange dealing is the exchange of the currency of one country for the currency of another.

The price of one currency expressed in terms of another is called the exchange rate. The basic idea of foreign exchange dealing is making profit on selling and buying currencies. Currencies are traded in pairs. Dealers and brokers usually quote not one, but two exchange rates for each pair of currencies: a bid (buy) price and an ask (sell) price. Dealers buy at the bid price and sell at the ask price, profiting from the spread between the bid and ask prices. Professional traders may take advantage of the arbitrage opportunity if there is a difference in price for a particular currency between two markets (for example, of pounds in New York and in London).

In an era of floating exchange rates, dealing in foreign exchange can be exceedingly risky. Banks typically employ a wide variety of currency-hedging techniques to help shelter their own and their customer’s currency risk exposure. The problem of fluctuating currency is very serious if payment must be made in future. Thus, there are two kinds of exchange rate transactions: spot and forward transactions. Settlement for a spot transaction is usually within one or two business days, in contrast, a forward contract is an agreement to deliver a specified amount at a set price on some future date (known as the value date) within 1,2,3,6 or 12 months. The exchange rates are called the spot exchange rate and the forward exchange rate respectively. The recent volatility of foreign exchange rates has given rise to a number of techniques to deal with currency risk. Among such hedging instruments are currency options, currency futures contracts and currency swaps. In the event customers do not know when they will need foreign currency, an option forward contract is frequently used A currency option is a contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time. For this right, a premium is paid to the broker, which will vary depending on the number of contracts purchased. “A call” is an option to buy, and “a put” is an option to sell. Currency futures contract is a futures contract to exchange one currency for another on a specified date in the future at a price (exchange rate) that is fixed on the purchase date. A foreign exchange swap (a currency swap) is an agreement between two parties to exchange two currencies at a certain exchange rate at a certain time in the future. For example, if a company knows that it will need British pounds in the future and another company knows that it will need U.S. dollars, they agree to swap the two at the agreed-upon exchange rate. This eliminates the risk that the exchange rate will change in a way that is disadvantageous to one party or the other.

Word List

deposits denominated in currency – валютні депозити

foreign exchange market – валютний ринок

interbank market – ринок міжбанківських операцій

foreign currency – іноземна валюта

down to the last penny – до копієчки

foreign exchange department – валютний відділ банку

inventory position – стан запасів

execution of transactions – виконання операцій

to hedge foreign exchange risk – хеджувати валютні ризики

simultaneous – одночасний

to maintain access to … – забезпечувати доступ до …

to maintain large inventories of key foreign currencies – тримати великі запаси основних валют

a correspondent bank – банк –кореспондент

dollar denominated deposit – доларовий депозит

exchange rate – валютний курс

arbitrage opportunity – можливість арбітражної операції

floating exchange rate – плаваючий валютний курс

domestic (national) currency – національна валюта

currency fluctuations – коливання валют

to employ a wide variety of techniques – використовувати різні методи

to shelter risk exposure – захищати від ризику

fluctuating currency – нестабільна валюта

spot transaction – операція спот

forward transactions – операція форвард

settlement – розрахунок

volatility – волатильність, мінливість, нестабільність

currency option – валютний опціон

futures contract – ф’ючерсний контракт

currency swap – валютний своп

to eliminate – усувати, ліквідувати

Exercise 3. Give Ukrainian equivalents to the following words and word-combinations.

The volume of transactions, interbank market, to buy and sell deposits denominated in foreign currencies, to consist of two tiers, wholesale market, retail market, to involve large sums, down to the last penny, spread, to stand willing to buy and sell, multinational firms, to facilitate execution of commercial or investment transactions, to hedge foreign exchange risk, to seek profit, simultaneous, treasury, to acquire foreign exchange reserves, to facilitate trading, to find a counterpart, to be headquartered, to maintain large inventories, to deliver, dollar denominated deposit, holder, foreign exchange dealing, to quote the exchange rate, arbitrage opportunity, to employ a wide variety of currency-hedging techniques, to shelter currency risk exposure, fluctuating currency, spot and forward transactions, settlement, at a set price, respectively, volatility of foreign exchange rate.

Exercise 4. Find in the text English equivalents to the following words and word-combinations. Make up your own sentences using them.

У середньому дорівнювати, депозити в іноземній валюті, складатися з двох рівнів, оперувати великими коштами, до копієчки, валютний дилер, сприяти проведенню торговельних та інвестиційних операцій, отримувати прибуток від чого-небудь, ціна купівлі, ціна продажу, одночасний, казначейство, валютний відділ банку, бути готовим придбати та продати, міжнародний портфельний інвестор, хеджувати валютні ризики, спекулянт, арбітражер, прагнути отримати прибуток, поповнювати або витрачати резерви в іноземній валюті, знайти контрагента, в усьому світі, мати головний офіс, торгувати валютою, власник доларового депозиту, валютна операція, котирувати курси валют, плаваючий валютний курс, використовувати різні методи хеджування валютного курсу, захищати від валютних ризиків, нестабільна валюта, дата валютування, банківський день, за встановленою ціною, призводити до появи, коливання валютного курсу, валютні опціони, ф’ючерсні валютні контракти, валютні свопи.

Exercise 5. Here are some word-combinations from the text. Match and translate them into Ukrainian.

1.	to acquire	a.	large inventories
2.	to eliminate	b.	to a number of techniques
3.	to maintain	c.	risk
4.	to give rise	d.	foreign exchange reserves
5.	to shelter	e.	a wide variety of techniques
6.	to employ	f.	risk exposure

Exercise 6. A. Match the synonyms.

A B

fixed rate	owner
holder	to protect
to shelter	pegged rate
to acquire	stock
inventory	settlement date
volatility	instability
value date	to buy

B. Match the opposites.

A B

floating rate	forward
fluctuating	retail
spot	to prevent
wholesale	stable
to give rise	fixed rate

Exercise 7. Match the terms with their definitions.

1.	ask	a.	the exchange rate in one currency at which a dealer will buy another currency
2.	arbitrager	b.	the exchange rate at which a dealer will sell the other currency
3.	to hedge	c.	a person who buys and sells goods, property, currency or shares in a company in the hope of making a quick profit
4.	bid	d.	a person who profits by simultaneously purchasing and selling currency to take advantage of spreads created by market conditions
5.	business day	e.	an exchange rate for a currency that is not controlled by the government but changes as the demand for the currency changes
6.	speculator	f.	to protect oneself against the risk of losing money in the future because of changes in the value of shares, currencies etc., e.g. by buying or selling futures, options
7.	floating exchange rate	g.	a transaction that involves the immediate (two-day) exchange of bank deposits
8.	forward transaction	h.	a transaction that involves the exchange of bank deposits at some specified future date
9.	exchange rate	j.	the relation in value between one currency and another
10.	spot transaction	k.	every official working day of the week
11.	foreign exchange reserve	l.	deposits of a foreign currency held by a central bank
12.	currency fluctuations	m.	the action of paying money that you owe
13.	settlement	n.	changes in the value of one currency relative to another

Exercise 8. Fill in the missing prepositions.

On, at, for (2), from, with, in (5).

1. Dealing _____ currency risk involves such hedging instruments as currency options, currency futures contracts and currency swaps. 2. Dealing or trading _____ foreign currency is an increasingly popular investment activity. 3. Some of FX market participants deal _____ currencies as an investment. 4. When an American firm buys foreign goods, services, or financial assets U.S. dollars (typically, bank deposits denominated ___ U.S. dollars) must be exchanged _____ foreign currency (bank deposits denominated ___ the foreign currency). 5. Alpari (UK) Limited is an award-winning Forex broker headquartered ____ the heart of the City of London and with subsidiaries in Germany, Japan and India as well as a Representative Office in China. 6. Banks trade international currencies to profit ____ changes in exchange rates, obtain currency for direct foreign investments or secure currency needed by the banks' customers. 7. The task of a broker is to find a counterpart ____ a client quickly. 8. A futures contract is an obligation to exchange a good or instrument ______ a set price ____a future date.

Exercise 9. Match two columns. Use the correct forms of word-combinations to complete the sentences below.

to trade to charge currency exchange spot

currencies fluctuations rate commissions transaction

1. Banks may exchange currencies in a ____________ in which two parties agree on an _____________and make an immediate currency trade. Or they may agree to a forward transaction in which they will ________________at a specific future time. 2. Forex trading is a zero-sum game: one counterparty to the trade wins, the other side loses. Brokers who only ______________ do not assume the role of counterparty to customer trades, and thus have no reason to manipulate prices or spreads to the customers' disadvantage. 3. Any individual or company engaged in overseas business should be aware of the risks of ______________.

Exercise 10. Choose the correct part of speech to complete the sentences. Change the form if necessary.

volatility (n)

volatile (adj)

1. The Exchange rate ________ measures the degree to which the exchange rate fluctuates or varies over a period of time. 2. Exchange rate is said to be more ____________ if there are more frequent ups and downs or less ________ if there are smaller changes in it over a period of time.

fluctuate (v) -

fluctuation (n)

1. It is important to note that currency ________ may appear as both upward and downward movements. 2. A currency with a floating exchange rate may undergo currency appreciation or currency depreciation, depending on market ________. 3. One of the uncertainties of international trade involves _________exchange rates. 4. _________ currencies increase foreign investment risk. 5. The exchange rate between any two currencies ________ from day to day and throughout the day.

expose(v)

exposure (n)

1. A hedging strategy helps you reduce currency ________ and the risk associated with currency movement. 2. Active currency hedge is designed to manage currency risk _________ with the objective of protecting the investor from depreciating foreign currencies. 3. The recent rise in volatility in the euro currency reminds us that when invested in ETFs, we can ______ to currency risk.

Exercise 11. Fill in the gaps with words and word-combinations from the box. Two words are odd.

trader	value date	trading
spot	fluctuating	foreign exchange markets
risk exposure	forward	currency rate

Knowledge of how the (1) ________ work and the way in which (2) ___________ can be reduced is indispensable for business managers today. Of course, the problem of (3) ______________ currency values is not so serious if payment must be made right away. (4) ___________ market prices of foreign currencies normally change little from day to day. However, if payment must be made weeks or months in the future, there is considerable uncertainty as to what spot (5) ______________ will be on any given future date. When substantial sums of money are involved, the rational commercial (6) ___________ will try to guarantee the future price at which currency can be purchased. This is the function of the (7) _____________ exchange market – to reduce the risk associated with the future purchase and delivery of foreign currency by agreeing upon a price in advance.

Exercise 12. Check your knowledge of the foreign exchange market. Answer these questions:

1. What is the foreign exchange market?

2. Where is it located?

3. What is the difference between wholesale and retail FX markets?

4. Enumerate the FX market participants.

5. What are foreign exchange dealers engaged in? What do they profit from?

6. Why do various participants in commercial and investment transactions use the FX market?

7. Is the FX market helpful to central banks and treasuries? In what way?

8. What is the role of the foreign exchange brokers? What do they profit from?

9. Do foreign exchange traders take large amounts of cash from one place to another? What is the exchange of deposits?

10. Define the foreign exchange rate. How is it quoted?

11. When does the arbitrage opportunity occur?

12. What is the difference between spot and forward transactions?

13. Why is so much attention paid to hedging? What hedging instruments are used? Characterize them.

Exercise 13. A. Match the terms with their definitions.

1.spot transaction	a) consists of two legs: a spot foreign exchange transaction, and a forward foreign exchange transaction thus having two value dates; thus one currency is swapped for another for a period of time, and then swapped back
2.currency option	b) is an option contract that gives the holder the right to sell a certain quantity of an underlying security to the writer of the option, at a specified price (strike price) up to a specified date
3.put option	c) is a straightforward single purchase / sale of one currency for another settled on any pre-agreed date three or more business days after the deal date
4.outright forward spot transaction	d) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date
5.call option	e) is a straightforward single purchase / sale of one currency for another settled, or delivered, on a value date no later than two business days after the deal date
6.swap	f) is an option contract that gives its holder the right (but not the obligation) to purchase a specified number of shares of the underlying stock at the given strike price, on or before the expiration date of the contract

B. Learn more about foreign exchange instruments. Fill in the gaps with the words and word -combinations from the box.

forward	foreign exchange swap	maturity	agreement
an exchange	trade date	underlying currency	foreign exchange risk
obligation	traders	forward exchange rates	forward transaction
value date	re-exchange	price	risk

Foreign exchange instruments

A spot transaction is a straightforward (or “outright”) exchange of one currency for another. The spot rate is the current market price. By convention, the settlement date, or “___________,” is the second business day after the “deal date” (or “__________”) on which the transaction is agreed to by the two ______________.

One way to deal with the foreign exchange __________is to engage in a ______________ __. A forward transaction requires delivery at a future value date of a specified amount of one currency for a specified amount of another currency. The exchange rate to prevail at the value date is established at the time of the agreement, but payment and delivery are not required until __________. _____________ are normally quoted for value dates of one, two, three, six, and twelve months. Dealers use the term “outright forward” to make clear that it is a single purchase or sale on a future date, and not part of an “FX swap”.

The most common type of forward transaction is the swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date creating an exchange and _________. These are not standardized contracts and are not traded through an exchange. The most common type of a _______________, forex swap, or FX swap is a spot against _________, where the dealer buys a currency in the spot market and simultaneously sells the same amount back in the forward market. Since this agreement is executed as a single transaction, the dealer is less exposed to unexpected _______________________.

A foreign exchange futures contract is an ___________ between two parties to buy/sell a particular (non-U.S. dollar) currency at a particular price on a particular future date. Futures are standardized forward contracts and are usually traded on ____________created for this purpose.

A foreign exchange or currency option contract gives the buyer the right, but not the obligation, to buy (or sell) a specified amount of one currency for another at a specified ________ on (in some cases, on or before) a specified date. Options are unique in that the right to execute will be exercised only if it is in the holder’s interest to do so. A call option is the right, but not the _____________, to buy the underlying currency, and a put option is the right, but not the obligation, to sell the _________.

Exercise 14. A. Read the following dialogue in which an experienced broker explains to a financial newspaper reporter how to read foreign exchange quotes correctly.

R. - You know, reading FOREX quotes very often confuses our readers, especially those new to the currency market. Can you throw some light on this? USD/CAD 1.2000. Can you tell us what this means?

B. - Well, this shows the current foreign exchange rate between the US dollar and the Canadian dollar. In our case the U.S. dollar is the base (transaction) currency. The base currency always comes first, and the counter (quote) currency, the Canadian dollar, is always expressed in terms of how many units equal one unit of the base currency. As I have mentioned, in our example, the U.S. dollar is the base currency, and it always is except when being compared to the “Queen’s currencies” (the Great Britain pound, the Australian dollar, and the New Zealand dollar), and the Euro. For example, the Euro - U.S. dollar currency pair is represented as EUR/USD.

R. - I see. But what does the figure stand for?

B. - It shows that to buy one unit of the US Dollar you’ll have to sell 1.2000 units of the Canadian dollar. Is that clear enough?

R. - Oh, yeah. It seems a piece of cake!

B. - Yeah, it’s really easy. But you should mind one more thing. Brokers get paid for their work through the "bid/ask spread." If we add our bid/ask spread to our example, it looks like this: USD/CAD 1.2000/05. This currency - pair quote of USD/CAD 1.2000/05 means there is a $1.2000 CAD bid price and a $1.2005 CAD ask price for the U.S. dollar-Canadian dollar currency pair. In other words, you can obtain $1.20 Canadian for every $1 USD (bid price), or, alternatively, you have to pay $1.2005 Canadian for every $1 USD. The spread in this case is five pips.

B. Read the following currency quotes.

E.g. EUR/USD 1.3645/49. € 1.3645 USD is bid price and € 1.3649 USD is ask price for the Euro-U.S. dollar currency pair This means that you can obtain $1.3645 for one Euro; or, alternatively, you have to pay $1.3649 for one Euro. In this case, the spread is of four pips.

USD/CAD 1.2232/37

EUR/USD 1.2500/03

GBP/EUR 1.2702/06

USD/JPY 116.09/13

Exercise 15. A. Read the text about FX trading. Match the headings (a - f) with the paragraphs (1-5). There is one extra heading which you don’t need to use.

a) The most traded currency pairs in the world.

b) The notion of foreign exchange.

c) Functions of the foreign exchange market.

d) The size of the foreign exchange market.

e) The location of the foreign exchange market.

f) Foreign exchange market hours.

1._______________________________

Foreign exchange market is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/Us Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).

2_________________________________

There are two reasons to buy and sell currencies. About 5% of daily turnover is from companies and governments that buy or sell products or services in a foreign country or must convert profits made in foreign currencies into their domestic currency. The other 95% is trading for profit, or speculation.

3__________________________________

For speculators, the best trading opportunities are with the most commonly traded (and therefore most liquid) currencies, called “the Majors”. Today, more than 85% of all daily transactions involve trading of the Majors, which include the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar.

4.__________________________________

A true 24-hour market, Forex trading begins each day in Sydney, and moves around the globe as the business day begins in each financial center, first to Tokyo, London, and New York. Unlike any other financial market, investors can respond to currency fluctuations caused by economic, social and political events at the time they occur – day or night.

5.___________________________________

The FX market is considered an Over the Counter (OTC) or “interbank”, due to the fact that transactions are conducted between two counterparts over the telephone or via an electronic network. Trading is not centralized on an exchange, as with the stock and futures markets.

B. Write five statements about the following figures.

5%
85%
95%

C. Find the words in the text that mean the following:

1. the system of money that a country uses.

2. the total amount of money spent in a market.

3. belonging to one’s own country

4. people who buy and sell things in the hope of making a profit

5. easy to sell (to convert into cash)

6. price changes

D. Answer the following questions:

1. What is foreign exchange?

2. Why do people buy and sell currencies?

3. What are the world’s seven major currencies?

4. Where and why does the Forex trading begin each day?

5. What enables the investors to respond to currency fluctuations promptly?

Exercise 16. Look at the timeline below, showing key dates in the development of exchange rate systems around the world. Match the dates with the events (A-E) below.

1944 1971 1973 1992 2002

A. Most industrialized countries switched to a system of floating rates. However, governments and central banks occasionally attempted to influence exchange rates by intervening in the markets. So there was a system of managed floating exchange rates.

B. The Bank of England lost over £5 billion in one day attempting to protect the value of the pound sterling. After this, governments and central banks intervened much less, so there was almost a freely floating system.

C. A fixed exchange rate system was started. The values of many major currencies were pegged (fixed) to the value of the US dollar. The American central bank, the Federal Reserve, guaranteed that it could exchange an ounce of gold for $35.

D. Twelve states of the European Union introduced a single currency, the euro, to replace their national currencies.

E. Gold convertibility ended because the Federal Reserve no longer had enough gold to back the dollar due to inflation.

Exercise 17. Translate into English.

1. З погляду окремого споживача або інвестора, валютні курси можна використати для обміну однієї валюти на іншу. Коли ви їдете закордон, ви повинні обміняти гривні на долари США, євро, британські фунти стерлінгів або інші валюти, залежно від країни призначення. Якщо гривня збільшує свою вартість, ви можете купити більше валюти для подорожі, що дасть вам можливість посмакувати доброю стравою або привезти більше сувенірів.

2. Ринкові сили визначають валютний курс, який визначається споживачами та інвесторами. Іноземними валютами торгують на валютних ринках по всьому світові. Валютні ринки – це не центральні, а позабіржові ринки; тобто не існує єдиного фізичного місця, де торговці збираються для обміну валют, як це відбувається для багатьох внутрішніх акцій і облігацій. Комп’ютерні мережі пов’язують торговців у комерційних банках у багатьох країнах.

3. З денним оборотом у трильйони доларів валютний ринок світового масштабу є одним з найбільших фінансових ринків у світі. Головними учасниками ринку є імпортери та експортери, банки, менеджери портфельних інвестицій та центральні банки.

4. На валютних ринках відбуваються два типи валютних операцій. У ринкових операціях спот валюти або банківські депозити обмінюються негайно (об’єкт для дводенної угоди). Спот курс це поточний валютний курс. В операціях форвард (строкові операції) валюти або банківські депозити повинні обмінюватися за встановленої датою у майбутньому. Тобто інвестори підписують контракт сьогодні на певну суму валюти і за певним валютним курсом. На певну майбутню дату відбудеться фактичний обмін валютами за курсом, відомим як форвардний курс.

Exercise 18. A. Listen to Peter Sinclair about the potential problems of freely floating exchange rates and answer the questions.

1.What is the current trend in exchange rates according to Sinclair?

2.What examples does he give of unexpected prices news?

3.What can happen to currencies in response to unexpected news?

4.Why can currencies be at the wrong level for long periods of time?

B. Listen again and complete the last part of what Sinclair says.

… a lot of the people who are operating in foreign exchange markets don’t tend to think so much about (1)_______ _______ _______ and what the currency really ought to be (2) _______ in order for its goods to be (3) ________ at the right level in (4) ____________ ___________ and so on. They’re trying to guess very (5) ___________ ___________ ___________, and they’re trying to guess the (6) _________ of other traders. They tend to say, “Oh, let’s see, if something is going up today it will probably go up tomorrow.” They just go in one direction and you often get huge (7) __________ _________ __________, going on for maybe even years, certainly for weeks and months, which are pushing the currency away from what it really ought to be. This is a source of (8) ________________ and it’s undoubtedly happening and it’s due to the fact that people don’t have (9) _____________ ____________ and often tend to say, “Well, if he’s doing this then he must know something I don’t, I’d better copy him”, and that can be a (10) _______________ for real trouble.

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