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Welcome to the FX fundamentals session of the Bloomberg Essential Online Training

Program. My name is Justin, and I am the FX specialist on the LX (ph) help desk
. So today well be walking through some of the key screens FX players like to loo
k at. Well get in and take a look at some of the high-quality rates that provided
on Bloomberg. Were also take a look at some screens that you can look at to sort
of monitor spot rates all across the world.
So the first screen we want to discuss is the FXIP home page for currencies.
So all you have to do to get there is simply type in FXIP in the top left hand
corner of the Bloomberg window in the command line. FXIP. Hit enter, or go. FXIP
essentially launches our home base for all FX rates. What youll notice how the s
creen is laid out is on the left hand side you have sort of all your countries,
as well as regions. Right now were currently on the G-10 currently just looking a
t G-10 rates. In the main sort of body of the screen, youll notice we have the FX
spot rates, which are commonly reference by all sort of different market player
s across the G-10 or Group of Ten nations.
Going from left
s are a key sort of
eposit rates to the
ountry so you get a
nd then finally, we
e of what the stock

to right, we have the deposit rates. Obviously interest rate


its a cornerstone in the FX markets, so we list three-month d
right. We also list 10-year bond yield benchmarks for each c
sense of where yields are trading in respective countries. A
list the equity indices to the right just to give you a sens
markets are doing in the respective countries.

Now a key some other key points about the screen is that directly below thes
e rates we have the DXY index, which is essentially the dollar index, and it tra
cks the performance of the basket of the US dollar against a host of other major
currencies. Directly below the chart we have FX news and research, which flashe
s relevant headlines in real time on all things related to the FX market. And th
ats something well explore in a short while, how you can see sort of relevant news
on the FX markets.
But before we move on from the screen, lets sort of take a look at some of th
e other tabs that the portal has to offer. Option 91, FX forwards up here, if we
select it, will actually display a forward term structure of various G-10 curre
ncy pairs. So what were looking at on the screen is essentially the relevant forw
ard exchange rates as of today, as of right now, that are ticking real time that
one could use to buy or sell a specific currency for delivery at a specific dat
e in the future.
So for example, under euro USD 1Y, this essentially is telling us well, in t
erms of points that what is the rate that we could buy or sell euros for deliver
y in one year time. FX options and volatility as well under Option 92 will show
you give you a sense of the FX options market. So some key things people would l
ike to see is essentially what is the realized volatility of the FX pairs, as we
ll as the implied volatility quoted by the markets used to price options. So well
get into this in a little more detail in a little bit, but right now the goal o
f FXIP is to provide an overview of the FX markets.
We also list relevant economic data under option 93 so you can get a sense o
f the fundamentals of the actual country which do influence the movement of FX r
ates. So this obviously is a key tie-in to the FX market, and anyone who trades
FX or just needs to get a sense of the economic health of various countries can
just come right here and just take a look at a birds eye view of the most relevan
t economic indicators. So this is FXIP at a glance. Again, a home page and sort
of a birds eye view of whats going on in the markets.
Now lets take a deeper dive into the currencies and take a look at the curren
cy ranker screen, which is a very popular screen amongst many of our clients. If
we key in the code WCRS in the top left for world currency ranker, youll notice

the first option that appears on my screen is world currency ranker. So lets just
click on that to load up the screen.
WCRS is essentially its function is implied by its name. So world currency r
anker shows you what are the relative rankings of various currency pairs for you
r given basket, specified up in the top middle, for various metrics. Now the scr
een will by default load up total return, as you can see on the left hand side.
And all your options and all your metrics that you want to rank can be selected
from the left hand side menu. So we can click on interest rates and see what ho
w the interest rates stack up across our basket of G-10 as of the current record
ing, as of today.
So if we back to the returns, again, the default was to show the total retur
n on various currency pairs within the G-10. So as you can see to the right in t
he body of the screen, youll notice Swiss franc, for example, has the greatest to
tal return against the dollar, mind you. So the base currency can be selected fr
om the top right over the month of March, from 03/01/2012 to 03/30/2012. The wor
st performer, conversely, was the Australian dollar against the US dollar. So if
you held Aussie dollar against US dollar, youd probably incur a loss of 3.86 per
cent against the US dollar.
So WCRC, again, is a great tool to sort of give you a quick glance at whats b
een going on historically at the markets. FXIP gives you a birds eye view of whats
going on right now, but WCRS gives you a sense of whats been happening over vari
ous time intervals. Now I just want to show you that you can obviously change th
e basket. If you were interested in Latin American currencies, select option 12.
Itll change the universe of currencies that youre observing. Again, these are all
currencies against the US dollar.
Another interesting feature of WCRS which is relatively new is our time seri
es. So you can actually visually see the returns of various currencies on the ri
ght hand side over time. A couple of other key points about this screen thats imp
ortant to note is on the left hand side you can also see some fundamental driver
s of currencies.
So one example is option 240 on the left. If we click on this gray option, l
ets change our basket for a second and go back to the G-10. You can actually see
how overvalued or undervalued currencies are in the context of purchasing power
parity. So purchasing power parity, or PPP as its known, is a fundamental look at
whether or not a currency is overvalued or undervalued given the relative price
levels within of goods within each country.
So based on this ranking, we can actually see that from our base period of J
anuary 1, 1982 to June 30, 2000, the Australian dollar was extremely overvalued
against the US dollar at roughly 33.6 percent. So this kind of gives you an idea
, and also helps you with idea generation in terms, okay, maybe I think the Aust
ralian dollars overvalued, so maybe I want to sell it. Because the theory holds t
hat in the long run currencies should basically trade at the relative price leve
ls of like goods in each country.
So another interesting feature of the screen before we move on is the carry
trade. If if you were interested in carry trade performance, which essentially i
s borrowing in a low yielding currency to fund a higher yielding currency and ea
rning that differential in interest rates, you can actually get a sense of what
has been the best or worst performing carry trades over a set period of time.
So one way we can play around with the screen is if
be, lets go back to the last decade if we key in 2002,
and again, were looking at the G-10 basket. Based on
ike shorting the dollar to fund a New Zealand dollar, a

we want to look back may


base currency is dollars,
this set up here, it looks l
long position, would giv

e us an incredibly high return of like 173 percent. So this is sort of a cool fe


ature and gives you a sense of what trades performed well in the FX markets and
sort of a great idea generation tool for traders and analysts alike.
So WCRS gives you a good historical perspective on currency performance, but
what if you were concerned about the now? So if you wanted to track currency pa
irs in real time, we have we have a better solution in terms of real-time data f
or you. So the first thing you want to do is type in the code WCR. Its just WCRS
without the S. And if you go to WCR, its essentially going to load a real-time mo
nitor thats customizable that allows you to track currencies on an intraday basis
. So traders and active watchers of the currency markets, this is going to be a
valuable screen.
Again, the screen is sort of set up the way other FX screens are. On the top
in red you have sort of settings that allow you to customize the screen. You ca
n edit the currency basket were looking at. For the time being, again, lets just s
tick with the G-10. Now what the screen is going to do is right now we have all
of the G-10 symbols, the ISO codes, on the left hand side. We have the time of l
ast update, and then we have the bid and the offer ticking in real time. Every t
ime it ticks itll show up in white so you know thats a live market rate. And then
we have obviously the change on day in terms of percentage, and then the open hi
gh, low and the close. So these are all very important indicators to sort of jud
ge where a currency is trading sorta intraday.
Now on a similar note, if youre looking for a little more customizability and
sort of trying to move away from just looking at spot rates, we have another to
ol thats very valuable in terms of looking at different aspects of the FX market.
And thats that screen is going to be the XDSH screen. So if you type XDSH in the
top left hand corner, hit enter or go, XDSH is going to load up an extremely cu
stomizable view of the FX market. So what we can do right now youll notice the fi
rst thing is that, again, were looking at the G-10 currencies. And currently the
way my view is set up is that were looking at implied volatility of the FX pairs
going out into the future. So implied volatility is obviously a very important c
omponent of options trading.
So this particular review would be useful for an FX options trader, but you
dont have to work with implied volatilities if you dont want to. So the way you ca
n customize this is if you go to option 1 views in the top left, if you select b
rowse views, well actually have a couple of different sample views that are alrea
dy pre-built for you that you can check out. So theres a ton over here on the lef
t hand side you can choose from. A lot of these custom ones have to do with real
ized and implied vol. Very useful if youre an options trader. So there are defini
tely a good amount of views you can choose from.
Some of the more common views that you might want to look at is we have tech
nicals. So if youre a trader or like to do technical analysis, you can set up XDS
H to have various pivot levels and key sort of technical factors that alert you
to when a signal has reached and potentially generate a buy or sell signal depen
ding on your preferences. So Im going to load this view up just so we can take a
look. And you can see in this particular view, the technicals view, were looking
at a series of expanded majors, so things outside the G-10, outside of the pound
British pound, euro, New Zealand dollar, Australian dollar. We have now Mexican
peso. In row 20, we have some of the Latam currencies, as well as Brazilian rea
l, and just a bunch of sort of currencies that traders may care about.
So youll notice over here again we retain the spot column, percentage change
on day. We also have a heat nap (ph) which is useful if you like to look at thin
gs graphically in terms how has the currency performed over the day, how far out
has it gone up, how far has it gone down. We have the MACD signal, which is a p
opular technical moving average convergence divergence. We have the RSI, Bolling

er bands, and all sort of other common technical indicators a trader would actua
lly care about.
So the great thing about this screen is its actually color coded so you can a
ctually get a sense of you dont have to dig through the numbers and figure out if
it a numbers up or down. This particular screen helps one quickly identify oppor
tunities in the FX market. So thats sort of the benefit of XDSH over WCR, althoug
h WCR is good in terms of just giving you a simple view of live spot rates.
Now changing gears a little bit, one of the things youll notice is obviously
the biggest question youre going to ask is where do we get our FX prices from. Fo
reign exchange is the largest over-the-counter market in the world. So obviously
the prices dont trade freely on the exchange. Theyre not freely observable on the
exchange. So Bloombergs strength is really in the fact that we get numerous cont
ributions from high-quality institutions, brokers and banks on various FX pairs.
Now to see where all the contributions are coming from, lets first load up an
FX pair. So if we type in EUR, hit F11 for the currency key, and then type in t
he code ALLQ, ALLQ stands for all quotes. So what were going to do by running thi
s command is see whos actually providing us quotes and what are the quotes for eu
ro dollar for the euro dollar currency pair. So if we type EUR currency key, ALL
Q, hit enter, again, its going to take us to this sort of great market view of wh
ats going on, whos quoting what for the euro dollar pair.
Now the way the screen is broken down is fairly straightforward. You can tog
gle the currency pair in the amber field in the top left hand corner. Now youll n
otice in the body of the screen we have all of the bankers and brokers contribut
ing their rates and the bid offers, as well as the time of last update, so you k
ind of know what quotes are stale, what are the most active. And this ALLQ scree
n is an invaluable screen to traders or investors looking to execute on the best
price possible. So ALLQ again, if we scroll down, in this case euro dollar is a
very well, it is the most liquid pair out there has 123 sources on the bottom l
eft, ou can see that here, that are quoting the euro dollar pair.
On the right hand side youll notice we have the forward points. So this is, a
gain, what we saw in FXIP with the forward currency term structure. Below that w
e have the realized volatility menu where you can actually see what is actual re
alized or historical volatility for various maturities. So you can see here thats
sort of if we go out to 18 months, one year, there was a lot more volatility ov
er that time period than of as of recently over the last one to 24 hours.
Now a couple of key points about this screen that youre going
is what are these white sources on the top left hand corner here.
GN, CMPN, BFIX (ph), as well as the last? Well, these are actually
g exclusive pricing sources that are highly, highly valuable to FX
well sort of take well go through them one by one.

to wonder about
What is the B
some Bloomber
players. And

The BGN source, the first option here, is the Bloomberg Generic source. And
what this what this does is sort of provides an accurate market indication of wh
ere spreads are in the market. So right now you can see the spreads on euro doll
ar are extremely tight, about one pip. Its one spot 33, 31, 33, 32. And this agai
n, the BGN is sort of an algorithmic price that looks at all of the contribution
s we receive and sort of spits back out a market fair market price. So if you ac
tually called up a broker and asked for a quote on euro dollar spot, youd probabl
y get a quote very, very on par to the BGN source. So BGN is our highest quality
FX rate. It sort of scans all the contributors that we have, scans the quotes,
the time of last update, runs them through a proprietary algorithm, and spits ba
ck out a market-accurate price.

Now the composite source directly below BGN is a little bit different. What
it does is essentially scrapes all the pricing that have stars next to them. So
these are listed as reliable contributions or contributors. And itll take the bes
t bid and the best offer and display them right up here, so you can always know
what is the highest bid and the lowest offer which you could buy or sell your FX
pair. So it obviously gives you the best sort of insight into what is the best
rate right now in the market that I could get for euro dollar.
Conversely, BGN is more of a what is the most accurate right now in the mark
et in terms of buffet (ph). I called up my broker and wanted a quote on euro dol
lar. The BGN is most likely going to be what theyre going to quote me over the ph
one. So thats sort of the difference between BGN and CMPN. CMPN is, again, just b
est bid, start offer, out of all the starred contributors.
Directly CMPN we have the Bloomberg Fixing. Now BFIX, as we like to call it,
is sort of a function of the BGN price. And what it does is capture it takes a
snapshot of the BGN price at every 30-minute intervals throughout the day. So ev
ery day youre going to have 48 fixings for every half an hour throughout the day,
which many players like to mark-to-market their instruments. So BFIX is somethi
ng well jump into in just a second.
Last update is sort of the last thing I want to discuss about the screen. Al
l it does is show you the last upgrade price for all of the contributors on ALLQ
. If we were looking at a less liquid currency, for example maybe euro South Afr
ican rand, there might not be as many contributors. So the last update will sort
of help quickly scan the list of who contributed the price last.
Now lets go from the BFIX, from what we just talked about, and sort of see wh
ere you can look at those half an hour, 30-minute fixings throughout the day. As
the screen as the source implies, BFIX, all you have to do is just type in BFIX
, enter, at the top left hand corner of the screen, and its going to take you dir
ectly to the BFIX screen.
Now BFIX, as I just mentioned, is again a snapshot of the BGN price at every
30 minutes throughout the day. This is useful for accountants, people who like
to mark-to-market their instruments that are denominated in different currencies
and they are simply looking for a benchmark price every day for which they can
take that rate and compute the market value of their instrument. So BFIX, again,
uses that high quality BGN rate and just basically stamps it at every 30 minute
s, takes a snapshot, and gives you the price.
So this is great because you can come here to sort of get a sense of how the
pair has been doing over the day. The currency is able to be changed up on the
top left hand corner. Currently were displaying the mid market. You can also back
date this page to see what the historical 30-minute intervals were. So this is
the extent of the BFIX page. And again, its very useful for people looking for co
nsistency in the FX markets, which essentially trades 24 hours a day and five to
six days out of the week. So thats the BFIX screen.
So weve been pulling up a lot of currency pairs and sort of just finding them
through different screens, but what if theres a currency pair or an instrument l
ooked to a specific currency that youre interested in? At this point, I want to i
ntroduce the screen FXTF, which is essentially our FX ticker finder. And its goin
g to be very useful for you, especially if youre not very in tune with the FX mar
kets and dont know all the currency codes.
So lets run FXTF, top left hand
see weve sort of broken down the FX
were looking at the southeast Asian
urrency for Malaysia. Well, lets go

corner of our screen, hit enter, and you can


tickers by region. So for example, lets say we
region and we wanted to know what was the c
click on option 3 under Asia Pac for southeas

t Asia. And youll notice that Malaysia is actually the Malaysian ringgit right he
re, so option 8.
If we further drill down into option 8, you can actually see that we have ca
tegorized all different types of instruments related to the ringgit into various
easy to find categories. So for example, options 2 to 4 will show you FX curren
cy fixings much like we saw in the BFIX. We also have FX forward rates for the M
yanmar Im sorry, the Malaysian ringgit, in both on shore and non-deliverable forw
ard as well.
Interest rates under options 9 to 14, obviously very important for anyone wh
os looking to invest in Malaysia. And then on the right we have more of the inter
est rate derivative products. So well have caps and floors for interest rate opti
ons, as well as contributed broker quotes for swaps of all types.
Now that you know how to find a currency pair as well as related instruments
, the last two screens I want to cover in terms of the FX fundamentals are FX fo
recasts, as well as FX forward rates, which are a key part of the FX market. Now
the great thing about Bloomberg is, again, we get a lot of data from high-quali
ty institutions, as well as research firms.
So one thing you might want to look at is, well, I want to know what the Str
eet thinks about the forecast for euro dollar or a given currency pair at a futu
re date. If youd like to see that, the screen you can go to is the FXFC screen, w
hich is FX forecast. If you hit enter, its going to take you to contributed quote
s for various forecasts for various currency pairs around the world. So FXFC is
sort of a great insight into what the Street thinks the strength or weakness of
currency pairs are going to be at various periods in the future.
So lets work with option 2, Japanese yen, just to mix it a up little bit. As
you can see, we have a row for forecast and then a row for forward. Well talk abo
ut forwards directly after this screen and get a little more into what a forward
is. But for now, well look at the forecast. So right now the current level of sp
ot for dollar yen is currently 83. Now as we can see, going across from left to
right, were going to go from Q2 of 2012 all the way out to 2016. So we actually g
et forecasts contributed all the way out to 2016, which is a pretty cool thing t
o see.
Now looking back at dollar yen, spot is currently at 83 yen per dollar. If w
e move out, the forecasts actually go numerically up, which means that the Stree
t thinks, or the median average of the contributed forecasts think that the yen
is going to weaken against the dollar. Now if you want some more transparency in
to these numbers, you can essentially click on the option 2, Japanese yen link h
ighlighted in blue. And you can see its going to take you to another list of vari
ous contributors, as well as their forecasts. So you can actually get a sense of
the individual contributions and what various banks and institutions think the
value of dollar yen is going to do.
Within this screen we also give relevant statistics on the group of contribu
tors. So you can see the median. Again, this is what we display on the main page
of FXFC. The average, the high, and the low forecasts, and then again, the curr
ent forward. Now this screen allows you to get a good sense of who thinks dollar
yen is going where. And again, itll sort of help you guide your thoughts on on i
nvesting in the currency markets, or if youre just looking at analysis, you can s
ort of get sort of a second opinion on what the dollar rate is going to do.
The last feature about FXFC I want to point your attention to is the chart f
eature on the top left hand corner. If you click on this, itll actually show you
what is the median forecast of dollar yen going out into various quarters, as we
ll as the current forward price for dollar yen at various quarters in the future

. And then in the purple line here we have the actual historical rate for the do
llar yen spot rate. So it kind of gives you a good market picture of what the St
reet thinks is going to happen versus what the froward thinks what the forward m
arket implies dollar yen will do.
Now the one of the second to last screens Im going to show you is the forward
screen, which is, again, a very key screen for anybody looking to transact in t
he forward foreign exchange market. Now the screen for forward is essentially FR
D, enter. FRD is going to show you the forward term structure for your given FX
pricing source. So just like spot, we have various brokers contributing FX forwa
rd rates, or rates at which you can transact today for exchange at some date in
the future.
Now the way the screen is laid out, again, is we have the red toolbar to cus
tomize the settings of the page. You can also export the data into Excel versus
option 1 actions. The currency pair is toggleable via these orange inputtable fi
elds, so we can change it up. If you wanted to look at euro Swiss franc, just ty
pe in EURCHF. And again, were looking at the BGN source, the high-quality Bloombe
rg generic.
Now the main body of the screen is going to be on the left hand side over he
re. All this data is going to be the FX forward term structure for euro Swiss fr
anc. So for example, if we want to look at what the cost is for euro Swiss franc
for delivery or exchange in one months time, well come to the 1M tenor. Well look
at the associated date on which this trade would settle, and then we can actuall
y have the bid offer forward rates for the current one month euro Swiss franc fo
rward rate.
And again, if you right-click on this option, youll see the ticker for this i
s EURCHF 1M BGN currency. If you click the ALLQ button, it takes you back to tha
t screen where we saw all quotes for FX spot, but this time its going to be for t
he forward rate, or for the one month euro Swiss forward rate, to be exact.
Now what happens if you want to buy or sell currencies in the forward market
that dont exactly fall in any of these round maturities? So what if we were look
ing at buying euro and selling Swiss franc in between one month and two month? W
ell, all youd have to do is come into the broken date (ph) section on the top rig
ht and either plug in the number of days to maturity or the actual calendar date
to the right.
So say we wanted to buy euro and sell Swiss franc that matured 35 days forwa
rd. All you would have to do is key in 35 days under the days field, hit enter,
and FRD will correctly interpolate for the 35-day forward. All it does is essent
ially takes the one month and the two month forward rate and linearly interpolat
es for the fair 35-day rate.
Now directly below the broken date section, we also have forward forwards. F
orward forwards allow you to buy and sell a currency on what we call the near le
g, and then reverse position on the far leg. So more sophisticated users of FX f
orward and swaps will be familiar with this tool, and simply can key in their ac
tual forward first forward date and the second forward date. And the screen agai
n will correctly calculate for the correct forward-forward swap given whats displ
ayed on the left hand side over here.
The last feature I really want to get into thats available on FRD is you can
actually graph the forward term structure of FX rates. So instead of sort of jus
t looking at all these numbers here and trying to figure if euro Swiss is cheape
r or more expensive in the forward market, if you go to Option 21, forward curve
, show chart, you can actually see what the forward term structure looks like in
a graphical format. So right now if we select the outrights, we can actually se

e that euro Swiss franc is downward sloping over the next 10 to 30 years. So thi
s is the extent of FRD and sort of the overview of FX fundamentals.
Really the last screen I do want to show you actually the last two, which wi
ll help you sort of just navigate the Bloomberg in terms of the FX market, are t
wo things. So one is the ability to change your custom default settings for FX p
rices. That default screen for FX rates are going to be located on the XDF scree
n, foreign exchange sources. So right now the way the screen is set up, we have
use BGN as default source where available. So when this is checked off, all the
rates we load at the top of the screen, for example Swiss franc currency, are go
ing to default to the BGN rate because we have BGN checked off.
Now since FX trades 24 hours a day, theres really no official close for the m
arket. If you want Bloomberg to determine a closing price for the BGN, you can s
imply check off one of the trading days on the left hand side. So right now I ha
ve New York 17:00 oclock. So if we look at the historical prices on dollar Swiss
franc, those prices are going to be taken as a snapshot of the BGN price at 5 p.
m. every day. And let me just show you that screen where you can see historical
prices, which is the same across all asset classes on the Bloomberg. Just type i
n CHF, currency key HP, and itll show you the historical prices, the 5 p.m. BGN s
napshot, of dollar Swiss franc. So thats sort of the value of XDF.
You can obviously customize the contributor. You come down here. You simply
type in the currency pair. For example, dollar South African rand. And under the
first box, if you hit the question mark you can actually see all the brokers co
ntributing pricing for dollar Swiss African rand sorry, South African rand. And
again, you can just select it and itll once you hit this and then hit enter, this
will allow dollar South African rand to pull up by using the Bank of America so
urce. And thats essentially XDF is really the cornerstone of FX pricing default o
n the screen on the system.
Now the last screen I do want to show you again, weve ran through many functi
ons but really have only covered a fraction of what we have to offer on the Bloo
mberg, is going to be the FXDV screen. FXDV is going to be sort of your reminder
or cheat sheet page that allows you to access FX functions we reviewed today, a
s well as FX functions that youve yet to discover. So we do offer a good amount o
f functionality and tools in the derivatives space. You can also price options u
p.
Youll see option 1 here for OVML, which will allow you to price bespoke optio
ns and derivative products on FX. We also have more in-depth volatility analysis
if youre interested in the options market. And then again, under forward and fut
ures, some of the things we went over today. FRD, which is sort of an introducti
on to contributed forward rates on the screen. And then moving to the top right,
where we had more of the monitors for FX spot, FXIP again, which is your home p
age, and WCRS again, which is a great idea generation sort of historical overvie
w page for FX pairs.
So this concludes the FX fundamentals tutorial. Again, should you have any f
urther questions, feel free to hit the help key twice and someone well-versed in
foreign exchange will be able to help you with any questions you have.