Foreign exchange markets
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Foreign exchange markets

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Foreign exchange markets Foreign exchange markets Presentation Transcript

  • FOREIGN EXCHANGE MARKETS
  • Contents
    What is Foreign Exchange Markets?
    Different players
    History
    Relevant acts
    Need
    Types
    Factor influencing foreign exchange rate
    Turnover
    Foreign exchange reserves
    Risk
  • Foreign exchange market
    It is the place where one currency is bought or sold for another currency
    The foreign exchange market (forex) is a worldwide decentralized over-the-counter financial market for the trading of currencies
  • Different players
  • History: Pre Liberalization
    India was under fixed exchange rate regime till March 1992; it was adjusted by the Central Bank
    The exchange rate was continuously adjusted by small margins to adjust with
    Changing inflation rates
    International economic changes
    Trade requirements
  • History:postliberalisation
    Rupee was made partially convertible on the current account
    Dual exchange rate system:
    40% at official exchange rate
    60% at marketexchange rate
    In 1993, this dual exchange rate system was removed and a single market determined exchange rate prevailed
  • Foreign Exchange Rates
    Fixed exchange rates
    Bretton Woods System
    Nixon Shock
    Floating Exchange Rates
  • Relevant acts
  • Need for foreign exchange market
  • Types of foreign market
  • Features of spot market
    Simplest way to meet foreign currency requirements
    Risk of exchange rate fluctuations
    No certainty of the rate until the transaction is carried out
    Larger the amount being dealt, better the spot rate that can be received
    Spot deal settles in two working days after the deal is struck
  • Features of forward market
    Requires a more complicated calculation
    Protects against unfavorable movements
    Contracts are available for any period up to two years
  • Factors influencing forex rate
    Business cycles
    Political developments
    New tax laws
    Stock market news
    Inflationary expectations
    International investment patterns
    Government and central bank policies
  • Turnover per day (as of dec’10)
    Source: World Bank, World Development Indicators
  • Foreign exchange reserves
    Foreign Exchange Reserves of various countries (July 2010)
  • Source: World Bank, World Development Indicators
  • Foreign Exchange reserves of india
  • Risk
    Risk refers to the variability in investment’s value due to changes in currency exchange rates
    Managing risk is central to successful investment in the forex market
    Types of Risks
    Transaction
    Economic
    Translation
  • Risk (Contd.)
    Transaction Risk:
    Trade Transactions: Export and Import
    Financial Transactions: Borrowing and Lending
    Payments & Receipts of dividend and interest
  • Risk (contd.)
    Translational Risk:
    Known as Consolidated Risk also
    It refers to assets and liabilities of a Balance Sheet denominated in Foreign Risk
    Comes into picture when foreign subsidiary is transferred to domestic country
  • Risk (contd.)
    Economic Risk:
    Risk involved due to the future change in exchange rate
    Methods to calculate Risk
    Current/Non Current method
    Monetary/Non Monetary method
    Closing Rate Method
    Temporal Method
  • SUBMITTED by
    GROUP 3
    Suresh Kumar Kiran
    K.P.V.S.Thushar
    Muruganantham R
    Deepesh T
    Shiv