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Chapter 5, Part II. Intermediate Checkpoint. Page 2

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 14, 2013.

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  1. Sive Morten

    Sive Morten Special Consultant to the FPA

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    Task #2

    Let’s imagine that the Bank of Japan (BoJ) investigates the possibility for currency intervention, because the USD/JPY rate is too low. And this is unwelcome situation for domestic producers.

    - What does long-term gradual reducing of the USD/JPY rate means in terms of Japanese Yen?

    - What should BoJ undertake during possible intervention to partially negate the USD/JPY rate decreasing?

    - What sort of position should you open due to all these circumstances to get profit from the intervention?


    Pipruit: Wow, wow, Commander! Maybe I’m a smart guy, as you’ve said, but I’m definitely not a tough guy, at least not yet in terms of FOREX.​

    Commander in Pips: This task is simpler than you think. Just read conditions carefully…

    Pipruit: Ok, as you wish, Your Highness. Let’s see…

    1. “Bank of Japan (BoJ) investigates the possibility for currency intervention, because the USD/JPY rate is too low” – obviously, due to this condition, BoJ intends to raise the USD/JPY rate with a possible intervention.

    2. “What does long-term gradual reducing of the USD/JPY rate means in terms of Japanese Yen?” Well, as with previous task with EUR, it means that either USD underperforms the JPY or the JPY outperforms the USD – anyway, the JPY performs better compared to the USD and the “yen to dollar” rate rises.

    3. “What should BoJ undertake during possible intervention to partially negate the USD/JPY rate decreasing?” Hm, I suppose that to negate a decreasing, or stop it for some time, it should initiate timely increasing of the USD/JPY rate. It means that somehow it should weaken the JPY relative to the USD. In this case, the JPY rate will decrease compared to the USD, hence the USD/JPY ratio will increase. Let’s see – in this pair the USD is the base currency, so USD determines the direction of the rate and any transaction, and it should rise…Ok, I think I’ve got it – the BoJ should buy significant amounts of USD for JPY (other words Sell JPY).

    4. “What sort of position should you open due all these circumstances?” – Well, now it looks simple. I should Buy USD/JPY.

    Commander in Pips: See, it’s not so awful when you break it down. Remember, fear hath a hundred eyes!

    Pipruit: Yeah, you’re absolutely right. So, may be you have some additional tasks?​

    Commander in Pips: Oh, you’d like that ha? You’ll definitely get more, let’s just remind you of some items about margin trading before that and then we will continue with riddles…
     
    #1 Sive Morten, Dec 14, 2013
    Lasted edited by : Feb 7, 2016
    Nachoga, SandGrain and fran alvarez like this.
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