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Foreignexchangemanagement 110929002933-phpapp01
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  • 1.  The foreign exchange market (FOREX) is a worldwide decentralized over-thecounter 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. EUR – Euro IEP – Irish Pound CHF – Swiss Franc AUD – Australian Dollar  SEK – Swedish Kroner MEP – Mexican Peso  DKK – Danish Kroner NZD – New Zealand $  INR – Indian Rupee SAR – Saudi Riyal     USD – US Dollar GBP – British Pound JPY – Japanese Yen CAD – Canadian Dollar
  • 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 New York to the West 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. A Day of Foreign-Exchange Trading ©2004 Prentice Hall 8-6
  • 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 Interbank (Bank account or deposits) Bank and money changes (currencies and bank note, cheques) Direct Spot Forward Central bank Indirect (Through broker) 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  International Agencies
  • 13.  B of P – is a record of the value of all economic transactions between residents of a country
  • 14.  Ready/cash- markets represent by fundsmost  Foreign exchange Settlement of far the on important financial markets in the world. Their role is the same day (date of the deal). of paramount importance in the system of  Tom- Settlement In order to play their role international payments. of funds takes effectively, itthe next that their day of the place on is necessary working opera-tions/dealings be reliable. Reliability essentially date of the deal. is concerned with contractual obligations being  honored. Settlementtwo parties have entered into Spot- For instance, if of funds takes a forward sale or purchase of a currency, both of them place be willing to honors their side of contract by should on the second working day delivering or takingdate of the deal. as the following the delivery of the currency, case may be.
  • 15. FOREX IMPORT physical Merchandise and software EXPORT nonphysical Outright sale basic REMITTANCE import Consignment basic export
  • 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