This presentation gives an overview about the forex market and the transactions that takes place in it. In briefs about various topics like - foreign exchange market - participants in forex market - speculation - difference between speculator and investors - hedging and its types - derivatives and its types - case study

1. PRESENTED BY – NEHA SHARMA
BUSINESS TRANSACTION IN FOREX
MARKET
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2. FOREIGN EXCHANGE MARKET
 The FX market is an over-the-counter market.
 i.e. there is no physical location where traders get together to exchange
currencies. Rather traders are located in the offices of major
commercial banks around the world and communicate using computer
terminals, telephones, telexes, and other information channels.
 The FX market is almost a 24 hour market.
 The major foreign exchange trading centers are in
London, New York, and Tokyo ---58%
Zurich, Singapore, and Hong Kong --- 20%
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3. Importers and exporters, portfolio managers
Commercial banks
Foreign currency brokers
Central banks
PARTICIPANTS
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4. SPECULATION
 Speculators who buy or sell currencies when they expect movement in
the exchange rate in a particular direction.
 They make their profit from movement of exchange rate in the desired
direction.
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5. DIFFERENCE BETWEEN INVESTOR & SPECULATOR
PARAMETERS INVESTOR SPECULATOR
TIME HORIZON Plans for longer time horizon his
holding period may be from one
year to few years
Plans for very short period holding
period varies from few days to
months
RISK RETURN Assumes moderate risk. Likes to
have moderate rate of return
associated with limited risk.
Willing to undertake high risk. Like
to have high returns for assuming
high risk.
DECISION Considers fundamental factors &
evaluates the performance of the
company regularly
Considers inside information, here
says and market behaviour.
FUNDS Uses his own funds and avoids
borrowed funds
Uses borrowed funds to
supplement his personal resources
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6. HEDGING
 Hedge refers to an offsetting contract made in order to insulate the
home currency value of receivables or payables denominated in
foreign currency.
 Objective of hedging is to offset exchange risk arising from
transaction exposure.
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7. TYPES OF HEDGING
 Forward market hedges.
 Money market hedges.
 Hedging with swaps.
 Hedging With foreign currency Future.
 Hedging with foreign currency options.
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8. FORWARD MARKET HEDGE
OBJECTIVE :- To nullify future spot rate.
SITUATION:-
 Expected inflows of foreign currency.
 Expected outflow of foreign currency.
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9. DERIVATIVES
 Derivatives are financial instruments whose value is derived from
other underlying assets. There are mainly four types of derivative
contracts such as futures, forwards, options & swaps.
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10. TYPES OF DERIVATIVES
 FUTURES
 FORWARDS
 OPTIONS
 SWAPS
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11. CHARACTERISTICS FUTURES CONTRACT FORWARDS CONTRACT
Meaning A futures contract is a standardized
contract, traded on exchange, to buy
or sell underlying instrument at
certain date in future, at specified
price.
A forward contract is an agreement
between two parties to buy or sell
underlying assets at specified date, at
agreed rate in future.
Structure Standardized contract Customized contract
Counterparty Risk Low High
Contract size Standardized/Fixed Customized/depends on the contract
term
Regulation Stock exchange Self regulated
Collateral Initial margin required Not required
Settlement On daily basis On maturity date
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