Market Commentary Resilient M&A Activity despite headwinds Despite the uncertain near-term economic outlook and difficult debt markets the number of completed M&A transactions across the specialty distribution sector in Q1 2023 has been encouraging  The buyer mix across the specialty distribution M&A landscape has largely been focused on strategic acquirers as private equity firms…

What they mean and why they matter, Currency traders might bemoan the lack of attention their market receives compared to equities based on the most recent data they trade about $75 trillion dollars per day compared to about $052 trillion daily in the global equity markets  In building a case for why currencies should receive more attention traders might describe how exchange rates which describe the value of one currency in terms…, base currency, the, quote currency, and the, exchange rate, (Figure 1  FIGURE 1 COMPONENTS OF A SPOT EXCHANGE RATE   Translation One euro can be exchanged for 10934 US dollars, Spot exchange rates, Spot exchange rates are used in trades that settle promptly meaning the currencies are exchanged within two days or less forward exchange rates are for trades that settle between a few days and years  Spot exchange rates are influenced by supply and demand That demand can be from central banks buying and selling currencies for monetary reasons such as intervening to keep a country’s exchange rate…, Forward exchange rates, Forwards are agreements to exchange currencies later than two days often a month or more after the transaction Forward exchange rates used in those agreements are based on the spot rate at the time of the trade plus forward points Those points reflect the difference between interest rates of the two currencies That interest rate differential is converted to points which are added to the spot rate…, F = S * (1+ ibc / (1+iqc, where    If we want to calculate just the forward points (FP we use this equation FORWARD POINTS EQUATION, FP = S * (ibc – iqc / (1+iqc,   If we add these calculated forward points to the spot rate we’ll get the forward exchange rate we calculated using the covered interest rate parity formula Let’s see how it works, EURUSD spot exchange rate, 10934, Days to settlement, 30, Interest rate time adjustment, 30 days to settle / 360 days per year = 008333  , Interest rates for euro and US dollar, Euro, 2324% or 002324 , USD, 4334% or 004334  , Adjust interest rates for 30-day period, Euro (ibc, 002324 * 008333 = 0001937, USD (iqc, 004334 * 008333 = 0003612     Calculate forward rate F using covered interest rate parity equation   Now let’s calculate forward points and combine them with spot rate to obtain the forward rate, FP = S * (ibc – iqc / (1+iqc, For convenience we copy data from the Forward exchange rate example   Combine the forward points with the spot rate to get the forward exchange rate F   Using the equation for 1 covered interest rate parity and 2 forward points and then adding the points to the spot rate resulted in the same forward exchange rate  When the currency with the lower interest rate is the base currency the forward…, forward discount, Forward points are positive when the currency with the higher interest rate is the base currency That’s called a, forward premium,  In our example EUR is the base currency and it has the lower interest rate so we have a forward discount , Foreign trade, Forward exchange rates are often used in hedging risk A US wine importer expecting a large shipment of Italian wines in three months worries about the EUR-USD exchange rate Fearing the euro might strengthen between now and receipt of the wine (when payment is due making the shipment more expensive in dollar terms the importer locks in the future price today by entering a forward exchange rate…, Feature, Spot exchange rate, Forward exchange rate, Timing Immediate Future but agreed upon today Purpose Direct exchange Hedging speculation Influenced by Market demand Interest rate differentials exchange rate expectations   Market upheaval like that associated with President Trump’s tariff announcement in early April brings currency to the forefront given its importance in foreign trade Importers typically comfortable with long-term forward…, Explore more currency insights, Are we too dependent on this FX benchmark, FX benchmark prices are critical for global commerce investments and trading but is there a hidden risk in your favorite FX rate Read article, Should a nation manage its currency, Free float vs managed float currency exchange rates which one is better Read article