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Foreign exchange management

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  • 1. 9/24/2013 1
  • 2. The currency markets can be classified as cash and derivative market . Cash market can again be divided into; Euro currency market Foreign exchange market 9/24/2013 2
  • 3. Euro Currency Market : Euro currency market enables investors to hold short term claim on commercial banks, which then act as these deposits into long term intermediaries to transform claim on final borrowers. There are three common reference rate are included under the Euro currency market such as: LIBOR London Inter Bank Offered rate. PIBOR Paris Inter Bank Offered rate. SIBOR Singapore Inter Bank Offered rate. 9/24/2013 3
  • 4. Foreign Exchange Market : In Foreign Exchange Market, currencies are bought and sold against each other. It is the world’s largest market with a daily turnover of $ 3.5 trillion a day. Most trading takes place in a few currencies such as : Countries • USA • India • Pakistan • Japan • Bangladesh • Canada Currencies/ Monetary units • US Dollar • Rupee • Pakistan rupee • Yen • Taka • Canadian Dollar 9/24/2013 4
  • 5. The Indian Foreign market is very small as compare to the global market. The Indian turnover is around $ 5 – 10 Billion per day. The Foreign exchange market is the world wide market in scope and the major world’s trading centers are in Tokyo, Singapore, New York and San Francisco. 9/24/2013 5
  • 6. 9/24/2013 6
  • 7. Features of Foreign Exchange Market 9/24/2013 7
  • 8. 1. Over the counter : The foreign exchange market is an over the counter market. It does not denotes a particular place or floor where dealers assemble and transact foreign currencies. 2. Operates 24 hours : Foreign exchange market is also known as round the clock market. Foreign exchange dealer are spread all over the globe, the time of transaction differ from one place to another depending upon the longitude of the place. 3. convertible currencies : The currencies transacted in the foreign exchange market are normally the strong, stable and convertible which are great demand because of their strong, stable and convertible . 4. Involvement of two countries : In foreign exchange management minimum two countries are involved. 5. Payment in foreign currency : Each country has its own currency. Payment for import good is made in foreign currency and payment for export is also received in foreign currency. 9/24/2013 8
  • 9. 9/24/2013 9
  • 10. The Foreign Exchange market performs the various functions as: Transfer of funds Commercial banks operates as clearing house for the Foreign Exchange market To identify the level of transaction and participants To determine and consider the foreign exchange rates 9/24/2013 10
  • 11.  Transfer of Funds : The principle function of foreign exchange market is the transfer of funds from one nation to another nation and one currency to another currency.  Commercial banks operates as clearing house for the foreign exchange market : Commercial banks of particular country operates as clearing house for the foreign exchange demanded and supplied in the course of foreign transaction by the nation’s residents.  To identify the levels of transaction and participants :The level of transaction or participants can be classified/identified in foreign exchange market such as: First level • Tourists • Importer • Exporter • Investors Second level • Commercial banks Third level Foreign Exchange Brokers Fourth Level Central bank 9/24/2013 11
  • 12. • At first level : Tourists, Importers, Exporters, Investors and so on. • At second level : Commercial bank which act as clearing house between users and earners of foreign exchange. • At third level : Foreign exchange brokers through whom nation’s commercial banks even out their foreign exchange inflows and outflows among themselves. • At fourth level : The nation’s central bank which act as the lender and buyer of last resort when nations total foreign exchange earnings and expenditure are equal.  To determine and consider the foreign exchange rate : The rate at which currencies exchange from one another will have to change to equilibrates the total quantity demanded and the supplied if such an adjustment in the exchange rate were not allowed ;the nation’s commercial banks would have to borrow from the central bank.9/24/2013 12
  • 13. 9/24/2013 13
  • 14. Sources of demand domestic residents wanting to buy foreign goods domestic residents wanting to buy foreign assets 9/24/2013 14
  • 15. Sources of supply foreigners wanting to buy domestic goods foreigners wanting to buy domestic assets 9/24/2013 15
  • 16. Prepared By Ishant Bhardwaj Husna Tabassum Sanjeev Yadav MBA III sem 9/24/2013 16