Objective of the study MAIN OBJECTIVE This project attempt to study the intricacies of the foreign exchange

Market. The main purpose of this study is to get a better idea and the comprehensive details of foreign exchange risk managment. SUB OBJECTIVES :
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To know about the various concepts and technicalities in foreign exchange . To know the various functions of forex market. To get the knowledge about the hedging tools used in foreign exchange.

LIMITATIONS OF THE STUDY :

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Time constraint. Resource constraint. Bias on the part of interviewers.

Data collections :
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The primary data was collected through interviews of professionals and observations. The secondary data was collected from books, newspapers, other publications and internet.

DATA ANALYSIS :
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The data analysis was done on the basis of the information available from various sources and brainstorming.

INTRODUCTION

FOREIGN EXCHANGE MARKET OVERVIEW In todays world no economy is self sufficient, so there is need for exchange of goods and services amongst the different countries. So in this global village, unlike in the primitive age the exchange of goods and services is no longer carried out on barter basis. Every sovereign country in the world has a currency that is legal tender in its territory and this currency does not act as money outside its boundaries. So whenever a country buys or sells goods and services from or to another country, the residents of two countries have to exchange currencies. So we can imagine that if all countries have the same currency then there is no need for foreign exchange. Let us consider a case where Indian company exports cotton fabrics to USA and invoices the goods in US dollar. The American importer will pay the amount in US dollar, as the same is his home currency. However the Indian exporter requires rupees means his home currency for procuring raw materials and for payment to the labor charges etc. Thus he would need exchanging US dollar for rupee. If the Indian exporters invoice their goods in rupees, then importer in USA will get his dollar converted in rupee and pay the exporter. From the above example we can infer that in case goods are bought or sold outside the country, exchange of currency is necessary. Sometimes it also happens that the transactions between two countries will be settled in the currency of third country. In that case both the countries that are transacting will require converting their respective currencies in the currency of third country. For that also the foreign exchange is required.

ABOUT FOREIGN EXCHANGE MARKET:

The foreign exchange market (forex, FX, or currency market) is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. The primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert one currency to another currency. For example, it permits a US business to import British goods and pay Pound Sterling, even though the business' income is in US dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation on the change in interest rates in two currencies. In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial

relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

Particularly for foreign exchange market there is no market place called the foreign exchange market. It is mechanism through which one countrys currency can be exchange i.e. bought or sold for the currency of another country. The foreign exchange market does not have any geographic location. Foreign exchange market is described as on OTC(over the counter) Market as there is no physical place where the participant meet to execute the deals, as we see in the case of stock exchange. The largest foreign exchange market is in London, followed by the New York, Tokyo, Zurich and Frankfurt. The markets are situated throughout the different time zone of the globe in such a way that one market is closing the other is beginning its operation. Therefore it is stated that foreign exchange market is functioning throughout 24 hours a day. In most market US dollar is the vehicle currency, viz., the currency sued to dominate international transaction. In India, foreign exchange has been given a statutory definition. Section 2 (b) of foreign exchange regulation ACT,1973 states: Foreign exchange means foreign currency and includes :
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All deposits, credits and balance payable in any foreign currency and any draft, travelers cheques, letter of credit and bills of exchange. Expressed or drawn in Indian currency but payable in any foreign currency. Any instrument payable, at the option of drawee or holder thereof or any other party thereto, either in Indian currency or in foreign currency or partly in one and partly in the other.

In order to provide facilities to members of the public and foreigners visiting India, for exchange of foreign currency into Indian currency and vice-versa. RBI has granted to various firms and individuals, license to undertake money-changing business at seas/airport and tourism place of tourist interest in India. Besides certain authorized dealers in foreign exchange (banks) have also been permitted to open exchange bureaus.

Following are the major bifurcations :

y Full fledge moneychangers they are the firms and individuals who have been authorized to take both purchase and sale transaction with the public.

Restricted money changers they are shops, emporia and hotels etc that have been authorized only to purchase foreign currency towards cost of goods supplied or services rendered by them or for conversion into rupees. Authorized dealers they are one who can undertake all types of foreign exchange transactions. Bank are only the authorized dealers. The only exceptions are Thomas cook, Western union, UAE exchange which though, and not a bank is an AD.