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Monitoring Euro-currency Interest Rates

In: The Exporter’s & Importer’s Handbook on Foreign Currencies

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  • A. D. P. Edwards

Abstract

The reason why it is so essential for both exporters and importers to understand how the forward market works is to ensure that they monitor the Euro-currency interest rates. Whereas the spot rate may well be gyrating up and down in a very erratic fashion and while the interest rates do change, they do not move anything like as erratically as the spot rate can move. They therefore provide a much more stable factor, and it is the difference in Euro-currency interest rates that requires to be monitored rather than the spot rate because these will show variations in the premiums and/or discounts, which in turn can be projected much more safely. For example, in order to brief a sales executive who may be setting out on an overseas trip lasting a month, it is of much greater practical help for him to know that however much the spot rate happens to move during that period he will still have an additional margin by way of forward premium of x per cent with which to negotiate. To provide him with a fictitious rate based on someone’s guess as to what the spot rate is likely to be might well have unfortunate results. See Figure 12 for 1988 and 1989.

Suggested Citation

  • A. D. P. Edwards, 1990. "Monitoring Euro-currency Interest Rates," Palgrave Macmillan Books, in: The Exporter’s & Importer’s Handbook on Foreign Currencies, chapter 8, pages 46-47, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-11852-6_9
    DOI: 10.1007/978-1-349-11852-6_9
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