The Foreign Exchange Market -Bloomberg (122 pages)
-Practically oriented
-Complete explanation of the theory and practice of the FX market and the functions available on Bloomberg.

Table of Content
I. FX: What is it and Why Trade it? 3
II. History of Foreign Exchange 4
III. The FX Market Today 7
IV. The Role of the Central Bank 10
V. The Economics of FX 17
VI. Other Factors That Affect FX 32
VII. Interest Rates 41
VII. FX Instruments 54
VIII. Options and Volatility 72
IX. Currencies in the Portfolio System 90
X. FX Pricing 94
XI. Global Macro Analysis 99
XII. FX Trading 110
XIII. Market Players 118


(excerpt)
Monetary Policy
Monetary policy is comprised of a view and corresponding actions taken by a central bank to achieve their mandates through by affecting the money supply and thereby the direction of the economy. Although central bank monetary policy does not directly change the trajectory of the economy, it does influence credit, output, employment, and inflation (and thereby currency values) by affecting aggregate supply and demand. It can generally be divided into two categories or “biases” as they are known:
Expansionary or Stimulative: increases the money supply to try and stimulate growth, primarily through lower interest rates that promote lending and borrowing.

This policy is also known as a monetary “easing” and affects the economy in two steps: first, it stimulates growth by changing overall financial conditions, market interest rates, credit availability, asset prices and the exchange rate (usually reducing the exchange rate and stimulating growth in the export sector). Second, the resulting strong growth puts pressure on capacity utilization and business costs, creating inflation.

Contractionary or Restrictive: decreases the money supply to fight inflation, primarily by raising rates and deterring borrowing and lending.

The primary levers for influencing monetary policy are changes in benchmark interest rates. The central bank sets rates at which banks can borrow from them as well as from each other. These rates in turn affect what banks charge companies and individuals seeking to borrow. If a central bank has an expansionary monetary policy they are considered “dovish” and will lower rates to encourage banks to lend and companies and individuals to borrow and spend. With a contractionary policy they are considered “hawkish”, and will raise rates and seek to stave off inflation.

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