The empirical economics literature has long studied the impact of geography on trade intensity. One main finding is that trade intensity varies significantly according to geographic distance. A classic example of this is a graph created by Eaton and Kortum (2002) that plots normalized import shares against distance from one country to the next. Each dot represents a country pair within a group of 19 OECD countries. The horizontal axis is also plotted against distance and is expressed on a logarithmic scale.
Trade area maps
Geospatial trading data has become a powerful tool for retailers. It allows them to map customer locations and analyze their hour-by-hour movement patterns. This helps them draw a trade area map that represents the true geographic pull of a particular customer segment. The data can also help retailers determine how long it takes for a customer to travel from one location to another.
Maps of trade areas can also help businesses identify market expansion opportunities. By comparing trade area maps of different businesses, business owners can determine areas that are best suited to increase sales. For example, they can compare trade area maps of convenience stores that sell comparison shopping. Maps can also reveal opportunities for market expansion based on where major employers and tourists live.
Trade area maps can also help retailers understand which trade areas have the highest potential for growth and are best suited for their products. Using these maps, owners can identify locations that are close to major highways and towns. These maps can also help them eliminate locations that could be ruined by traffic or poor parking.
Spot exchange rates
A spot exchange rate is a current rate at which one currency will trade for another at a specific point in time. A trader will pay this rate to purchase a foreign currency. Most transactions on the spot foreign exchange market settle on the next business day. However, weekends and holidays can extend the settlement time.
The FX spot market is the largest liquid market in the world. Spot rates are set through transactions that take place electronically between multinational banks, hedge funds, and government entities. These transactions are made for a variety of purposes, including import and export payments, as well as short and long-term investments.
The major EME currencies spread their trades according to geographic trading patterns. The Chinese renminbi shows the fastest diffusion, followed by the Mexican peso, Indian rupee, and Korean won. However, Asian trading centers tend to lose market share to the centers in North America and Europe.
Foreign exchange rate movements
The role of geography in foreign exchange market dynamics is well established. Empirical studies have consistently shown that geographic distance is a significant determinant of trade intensity. An instance of this relationship can be witnessed in a graph produced by Eaton and Kortum (2002) that plots normalized import shares against distance. The dots represent country pairs from 19 OECD countries. The horizontal axis and vertical axis are both expressed on a logarithmic scale.
A common currency and membership in political unions are important factors in inter-country trade. The effects of these factors are especially important when studying the impact of exchange rate volatility on trade. While this approach requires disaggregated data, it can provide an improved insight into the role of exchange rate volatility in international trade.
However, disaggregated trade data have a number of problems. One of these problems lies in the presence of zero observations, which imposes significant estimation caveats. The higher the level of disaggregation, the greater the risks of multiple zero observations. Further, the presence of multiple zero observations increases the risk of selection biases and non-linearities in the estimates.
Currency arbitrage
Currency arbitrage is a technique in which you simultaneously buy and sell currencies. This strategy is considered low-risk trading, provided you are executing your trades flawlessly. Even the slightest slippage can negate the gains you make. Therefore, it is essential to diversify your trades and use different exchanges.
Geographical trading patterns create price differentials in currency pairs. By looking for such price differentials, you can take advantage of currency arbitrage. There are several methods to take advantage of these price differentials. One method involves buying a currency pair at one rate and selling it for another at a higher rate. Another strategy involves hedging exchange risks using a forward currency contract.
Another option is to monitor foreign exchange rates before making large purchases. The currency market fluctuates with speculative prices, which means that the Central Bank will likely want to offer that currency for sale in the market.