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Forex Discussions
Fundamental Analysis
Cross Border Foreign Exchange Intermarket Analysis
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[QUOTE="maximusc, post: 107642, member: 38232"] When LIBOR is released by the BBA and when nations, through their top bankers, release their own rates, this is called fixing. Fixing times occur many times throughout any trading day and represent at times trading opportunities. BBA fi xings represent one time and one fix, the external unsecured borrowing rate for a nation’s bank doing business in London, while each nation must set its own fi x to represent its internal unsecured borrowing rate. All times for the internal fix of nations are different due to the various time frames in which nations trade. Because these rates are the shortest and most sensitive of all interest rates, trading opportunities may occur based on new bids and offers. For example, the fact that Tokyo releases its fixing rates one hour after the Japanese stock market opens is constructive for short-term gains. Markets will reflect LIBOR immediately. Central banks that experience an interest-rate change are another trading opportunity, because all interest rates short and long must be reflected in the market through financial instruments because the cost to borrow, lend and liquidity needs changed. What is important is that LIBOR must be priced to the currency. BBA LIBOR and internal nations’ LIBORs must be viewed as an offshore and onshore interest rate. The offshore rate allows business and trading to be conducted overseas in a nation’s currency at a particular BBA rate while the onshore rate is the rate priced to the currency in the home market. To factor an interest rate for the home market, take BBA LIBOR and divide it by the internal rate to obtain an effective interest rate. That rate will be the basis to trade a currency pair in the home market while the market is open. If a nation has two internal interest rates, as is the scenario among the major pairs, divide the two internal rates to obtain an effective rate. [/QUOTE]
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