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Foreignexchangemanagement 110929002933-phpapp01 (1)
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  • 1.  The foreign exchange market (FOREX) is a worldwide decentralized over-the- counter financial market for the trading of currencies.  In simple words, it is a place where one currency is exchanged with another currency based on fluctuation rates.
  • 2.  USD – US Dollar EUR – Euro  GBP – British Pound IEP – Irish Pound  JPY – JapaneseYen CHF – Swiss Franc  CAD – Canadian Dollar AUD – Australian Dollar  SEK – Swedish Kroner MEP – Mexican Peso  DKK – Danish Kroner NZD – New Zealand $  INR – Indian Rupee SAR – Saudi Riyal
  • 3. 2. Only market open 24 hours - FX Market is a 24 hour market - It starts when a calendar business day opens in Sydney,Tokyo, Hong Kong, Singapore and then moves to Middle East to Europe to NewYork to theWest Coast of United States where the calendar business comes to a close - FX Market operates seven days a week (Middle East Markets function on Saturdays and Sundays) - Effectively it is a 24 hour a day / seven days a week / 365 days a year Market!
  • 4.  Increase in foreign currency price  From Rs.46 to Rs.48/ USD  Foreign currency appreciation  Home currency depreciation  From USD 0.0217 to USD 0.0208/ Re
  • 5. ©2004 Prentice Hall 8-6 A Day of Foreign-ExchangeTrading
  • 6.  Organisational setting within which individuals, governments and banks buy and sell foreign currencies.  Only a small fraction of daily transactions in foreign exchange involve trading of currency.  Most foreign exchange transactions involve transfer of bank deposits.
  • 7.  Spot markets  Forward markets  Futures markets (In India, yet not permissible)  Options markets  Swaps markets
  • 8. Foreign exchange market Retail wholesale Bank and money changes (currencies and bank note, cheques) Interbank (Bank account or deposits) Central bank Indirect (Through broker) Spot Direct Forward Derivatives (Future options etc.)
  • 9. About 90% of foreign exchange trading is in the Interbank part of the market.
  • 10. Provides continuous information on the foreign exchange market—  Talking with traders at other banks.  Observing prices (exchange rates) being quoted.
  • 11.  What is a forward foreign exchange contract? (An agreement to exchange one currency for another on some date in the future at a price set now [the forward exchange rate]).
  • 12. The participants in the foreign exchange market are:-  Individuals  Firm  Banks  Governments  InternationalAgencies
  • 13.  B of P – is a record of the value of all economic transactions between residents of a country
  • 14.  Foreign exchange markets represent by far the most important financial markets in the world.Their role is of paramount importance in the system of international payments. In order to play their role effectively, it is necessary that their opera-tions/dealings be reliable. Reliability essentially is concerned with contractual obligations being honored. For instance, if two parties have entered into a forward sale or purchase of a currency, both of them should be willing to honors their side of contract by delivering or taking delivery of the currency, as the case may be.  Ready/cash- Settlement of funds on the same day (date of the deal).  Tom- Settlement of funds takes place on the next working day of the date of the deal.  Spot- Settlement of funds takes place on the second working day following the date of the deal.
  • 15. FOREX import export REMITTANCEEXPORTIMPORT Outright sale basic Consignment basic physical non- physical Merchandise and software
  • 16.  The prices of tradable goods, when expressed in a common currency, will tend to equalize across countries as a result of exchange rate changes  Occurs because process of buying goods in a cheap market and reselling them in expensive market affects demand for (and price of) the foreign currency and the market price of the good in the two product markets in question ©2004 Prentice Hall 8-18
  • 17. ©2004 Prentice Hall 8-19