M6 — CM-EIP: Securities, CIS (EIP) and Foreign Exchange
Foreign Exchange
This chapter covers how the over-the-counter FX market is organised, how to read and use two-way quotes, cross rates, percentage currency moves, spot and forward pricing under interest rate parity, hedging with forwards, FX swaps and NDFs, the currency effect on foreign investment returns, what drives exchange rates, and how MAS runs Singapore's exchange-rate-centred monetary policy. Expect a heavy share of calculation items: most marks are lost by dealing on the wrong side of a quote, dividing when you should multiply, or adding returns instead of compounding them.
9 sections·~6 min read
✓Checked against the IBF CM-EIP syllabus chapter 4 (checked 13 Sep 2026); MAS FAQs on Singapore's Monetary Policy Framework sections 2-4, MAS Notice 757 (last revised 28 June 2021), BIS Triennial Central Bank Survey April 2025 turnover (final results, June 2026), checked 13 Sep 2026. Unofficial prep, not endorsed by MAS or IBF.
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Must-know for the exam
✓In XXX/YYY, XXX is the base and YYY the quote currency: the rate is YYY per 1 XXX. USD/SGD 1.3450 means USD 1 = SGD 1.3450.
✓For a Singapore resident, a direct quote has the foreign currency as base (USD/SGD); an indirect quote has SGD as base (SGD/JPY). Indirect = 1 / direct, and inverting a two-way quote swaps bid and offer.
✓The customer buys the base currency at the dealer's offer (higher rate) and sells the base at the bid (lower rate). The dealer keeps the spread.
✓One pip is 0.0001 for four-decimal pairs and 0.01 for yen pairs. Pip value = base-currency notional x pip size, in the quote currency: USD 1,000,000 in USD/SGD = SGD 100 per pip.
✓Cross rates: if USD is the base in both quotes, divide (SGD/JPY bid = USD/JPY bid / USD/SGD offer). If USD is the quote in one and the base in the other, multiply same sides (EUR/SGD bid = EUR/USD bid x USD/SGD bid).
✓% change of the base currency = new / old - 1; % change of the quote currency = old / new - 1. The two are never mirror images.
✓Spot FX conventionally settles T+2 business days, counting only days open in both currencies' centres.
✓Forward points: descending (bid points > offer points) are subtracted and the base is at a discount; ascending are added and the base is at a premium.
✓Covered interest parity: F = S x (1 + i_quote x d/basis) / (1 + i_base x d/basis). The higher-interest-rate currency trades at a forward discount.
✓Exporters with foreign-currency receivables sell that currency forward; importers with payables buy it forward. An outright forward is binding and gives up any favourable move.
✓NDF settlement in USD = notional x (fixing - NDF rate) / fixing, paid to the party that bought USD when the fixing is above the contract rate. No restricted currency is delivered.
✓Home-currency return = (1 + local return) x (1 + currency change) - 1. Never add the two.
✓Relative PPP: S1 = S0 x (1 + inflation of quote currency) / (1 + inflation of base currency). Higher inflation means depreciation.
✓MAS targets the trade-weighted S$NEER (not an interest rate), managed within an undisclosed policy band under the Basket, Band and Crawl framework, mainly through spot US$/S$ intervention (MAS FAQs, checked 13 Sep 2026).
How the FX market works
•The exam tests whether you know FX is an over-the-counter market, who trades in it and why. These are quick marks if you avoid picturing a stock exchange.
•Currencies trade over the counter. Dealers quote two-way prices to each other and to customers, by phone or on electronic platforms. There is no single exchange or central order book, and trading passes from Asia to Europe to North America through the week, so prices are available almost around the clock on weekdays.
•Banks (dealers or market makers): quote bid and offer prices and earn the spread.
•Corporates: exporters, importers and investors converting trade and investment flows and hedging currency exposure.
•Institutional investors and asset managers: buy foreign assets and hedge them.
•Speculators (hedge funds, proprietary traders): take positions to profit from expected moves, with no underlying commercial need.
•Central banks: trade to implement policy. MAS intervenes in the spot market to keep the S$NEER within its policy band.
•The BIS Triennial Central Bank Survey for April 2025 (final results, June 2026) put global OTC FX turnover at about US$9.6 trillion a day. FX swaps were the largest instrument at about 42%, ahead of spot (31%) and outright forwards (19%). The US dollar was on one side of 89.2% of trades, which is why cross rates are priced through USD. By location, the United Kingdom and the United States led, with Singapore third, ahead of Hong Kong SAR.
•Trap: examiners offer spot as the biggest segment, or describe FX as centrally cleared. FX swaps are larger, and spot FX is bilateral.
•Takeaway: FX is a dealer-based OTC market; FX swaps dominate turnover; USD is on nearly 90% of trades; Singapore is the third-largest centre.
•Nearly every calculation item starts with a two-way quote. If you pick the wrong side or the wrong direction, every later step is wrong.
•Base currency: the first currency, always 1 unit. Quote (terms) currency: the second currency, the price of 1 unit of base.
•Direct quote (Singapore view): foreign currency is base, e.g. USD/SGD 1.3450. Indirect quote: SGD is base, e.g. SGD/JPY 111.11.
•Converting: indirect = 1 / direct. For a two-way quote, new bid = 1 / old offer and new offer = 1 / old bid.
•Bid: the rate at which the dealer buys the base. Offer: the rate at which the dealer sells the base. Customers buy at the offer and sell at the bid.
•Pip: 0.0001 for most pairs, 0.01 for yen pairs. Spread in pips = (offer - bid) / pip size. Spread % = (offer - bid) / offer x 100 if the stem says 'of the offer'.
•Worked example. USD/SGD 1.3440 / 1.3450. A customer buying USD 10,000 pays 10,000 x 1.3450 = SGD 13,450.00. A customer selling USD 25,000 receives 25,000 x 1.3440 = SGD 33,600.00. A customer with SGD 50,000 who wants USD divides by the offer: 50,000 / 1.3450 = USD 37,174.72. The spread is 10 pips, or 0.0010 / 1.3450 = 0.074% of the offer. The equivalent SGD/USD quote is 1/1.3450 = 0.7435 bid and 1/1.3440 = 0.7440 offer.
•Worked example (pip value). USD 200,000 in USD/JPY at 150.00: one pip = 200,000 x 0.01 = JPY 2,000 = USD 13.33.
•Trap: when the home currency is the base (SGD/JPY 110.20 / 110.35), a customer converting SGD 5,000 into yen sells the base at the bid: 5,000 x 110.20 = JPY 551,000. Candidates grab the higher number.
•Takeaway: customer buys base at the offer, sells base at the bid; divide when you start with the quote currency.
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