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    Foreign Exchange Markets

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    Priyank Saxena
    Foreign Exchange market is one of the largest markets in the world. By some estimates, about 3. Trillion USD worth of currency changes hands every day. CENTRAL BANK Maintains external value of the currency of the country.

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    Foreign Exchange Markets

    Uploaded by

    Priyank Saxena
    41 views11 pages
    Foreign Exchange market is one of the largest markets in the world. By some estimates, about 3. Trillion USD worth of currency changes hands every day. CENTRAL BANK Maintains external value of the currency of the country.

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    Foreign Exchange market is one of the largest markets in the world. By some estimates, about 3. Trillion USD worth of currency changes hands every day. CENTRAL BANK Maintains external value of the currency of the country.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    41 views11 pages

    Foreign Exchange Markets

    Uploaded by

    Priyank Saxena
    Foreign Exchange market is one of the largest markets in the world. By some estimates, about 3. Trillion USD worth of currency changes hands every day. CENTRAL BANK Maintains external value of the currency of the country.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 11

    Priyanka Saxena Roll No- 1023 MFM Sem-V

    FOREIGN EXCHANGE MARKET


    2

    It is defined as the market where one currency is traded for another It creates a mechanism for exchanging different monetary units for circulation in different countries and thus facilitates transfer of purchasing power from one country to another The foreign exchange market is one of the largest markets in the world. By some estimates, about 3.2 trillion USD worth of currency changes hands every day.

    FEATURES OF FOREX MARKETS


    3

    Over the counter market Network of Banks, Brokers and Dealers Relies on communication network Dealing room Place where all the professionals who deal in currencies and derivatives assemble Facilitates instant access to the entire information and communication Round the clock market Largest financial market Volume of transactions Bulk share of transactions comes from commercial banks 10 15%, pertaining to movements of capital like Investment Funds 5% from International Trade and Tourism High volatility Exchange rate fluctuates once in every 4 seconds

    CLASSIFICATION OF FOREX MARKET


    4

    FOREX MARKET

    ACCORIDNG TO TRANSACTION

    DERIVATIVES FOREX MARKET

    FINANCIAL MARKET PARTICIPANT Wholesale / Inter Bank Market Retail or Client Market

    Spot Market

    Forward Market

    Futures Market

    Options Market

    Swaps Market

    PARTICIPANTS OF FOREX MARKET


    5

    CENTRAL BANK Maintains external value of the currency of the country Ensures orderliness in the movement of exchange rates When the market rate of the currency reaches the upper lines called as Upper Intervention Limit, it must increase the sale of its own currency in exchange for other currencies When the market rate reaches the lower intervention Limit, it must sell currencies and buy its own currency COMMERCIAL BANKS Deal for executives and their clients Market markers All the major commercial banks that have been authorized to deal in forex collectively constitute what is known as Inter Bank Market FOREX BROKERS Bring buyers and sellers together Deal in most of the major currencies and hold exhaustive information (quotes) CORPORATIONS SPECULATORS

    ROLE OF RBI IN FOREX MARKET


    6

    RBI regulates forex market The entities that are authorized by RBI can deal in Foreign Exchange i.e, Authorized Dealers or Money Changers They are Commercial Banks They are allowed to buy and sell foreign currency for their customers They are permitted to deal with all documents relating to exports and imports Authorized Dealers have to operate within the rules, regulations and guidelines issued by FEDAI from time to time

    TYPES OF ACTIVITIES
    7

    Speculation

    An activity that leaves one open to exchange rate fluctuations where one aims to make a profit. Allows the firm to transfer exchange rate risk inherent in foreign currency transactions or positions.

    Hedging

    Arbitrage take advantage of inconsistent prices to make risk-free profits. These profits are unlikely to last long.

    Spatial (or Locational) Arbitrage

    Triangular Arbitrage Covered Interest Arbitrage

    FOREIGN EXCHANGE RATES & QUOTATIONS


    8

    A foreign exchange rate is the price of one currency expressed in terms of another currency.
    A foreign exchange quotation (or quote) is a statement of willingness to buy or sell at an announced rate.

    BID & ASK QUOTATION


    9

    Foreign currency dealers provide two quotes:

    Bid Price: Price at which the dealer is willing to buy foreign currency from you. Ask Price: Price at which the dealer is willing to sell foreign currency to you. It is always the case that the Ask Price > Bid Price. The difference is the Bid-Ask spread.

    The less traded and more volatile a currency, the greater is the spread.

    DIRECT & INDERICT QUOTES


    10

    Direct Quote: Home currency per unit of Foreign currency (FC) - e.g. AUD/ quote is 1.6003 1.6499 Indirect Quote: Foreign currency per unit of Home currency - e.g. /AUD quote of 0.6061 0.6249 Note that in all cases, the reciprocal of a direct quote is an indirect quote:
    AUD 1 EUR EUR AUD

    Also, you might encounter an exchange rate quotation in American terms (US$/FC) or European terms (FC/US$).

    Thank You

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