Understanding Forex, Financial Ratios, and Country Competitiveness

Forward Exchange (EUR/SEK):

x = Exchange rate * (1 + SEK interest rate) / (1 + EUR interest rate).

CAP: Establishes an upper limit on interest rates. Floor: Establishes a lower limit on interest rates. EBITDA: Higher than net income. ROE: Return on Equity. For the equity the company provides, it generates an operating income of X annually.

Theoretical Semiannual Euribor:

(1 + First-half rate) * (1 + Second-half rate) = (1 + Annual rate).

Nominal Exchange Rate: (Nominal Exchange Rate * Domestic Price Level) / Foreign Price Level.

Spot Market: Notional amount * (1 / Current exchange rate - 1 / Initial exchange rate). Positive value means that in 9 months the spot market will be more expensive.

FXA (Foreign Exchange Agreement): Notional amount * (1 / Current exchange rate - 1 / FXA strike price). Net Result: -Spot Market + FXA.

Demonstration: Strike price = x, Notional amount | Current exchange rate = y | y - FXA = z | Notional amount / z = x.

Liquidity Ratio: Total current assets / Total current liabilities. Leverage: Total liabilities = Total current liabilities + Total non-current liabilities | Leverage = Total liabilities / Total equity | Total liabilities represent 56%, indicating 56% financing through liabilities and 44% from equity. ROA (Return on Assets): Operating result / Total assets = x | For each euro invested in assets, the company generates x euros in 2020 (example). The higher the ROA, the better.

Competitiveness of a Country:

• Nominal Exchange Rate: If a country's currency appreciates, its competitiveness decreases because its goods and services become more expensive for export. Imports will increase as they become cheaper.
• Domestic Price Level: If domestic prices rise, national products become more expensive, negatively affecting exports. Conversely, imports will increase because they become relatively cheaper.
• Price Levels in Other Countries: If foreign prices increase, the country's competitiveness improves, benefiting exports. However, imports become more expensive.

Functions of the Forex Market:

• Price Fixing: Determines the fair market value of currencies based on supply and demand. Investors can exchange currencies at this market price.
• Exchange Hedging: Enables hedging strategies to protect against currency fluctuations.
• State Financing: Allows countries to lend and borrow money by converting funds into their respective currencies for domestic use.