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FOREX MARKETS
OUTLINE
Forex and Forex
Markets
Investments and
Risk Management
in Forex Market
FOREX AND FOREX
MARKET
WHY FOREIGN
INVESTMENTS?
To take advantage of
economies of scale
Foreign firms foster
forward and backward
economic linkag...
RISKS (EXPOSURE)
Transaction Risk
•Measures the effect of an
exchange rate on outstanding
obligations
Translation Risk
•Re...
THE FOREX MARKET
Forex Exchange
Market
• A Market for
converting the
currency of
one country
into the
currency of
another....
INSTRUMENTS IN THE FOREX
MARKET
Currency
Forwards – OTC
Loans - OTC
Currency Swaps
– OTC
Currency Futures -
Regulated
Curr...
INVESTMENT AND
DECISION MAKING IN
THE FOREX MARKET
INVESTOR
S
APPROAC
H TO
FOREX
RISK
MANAGEM
ENT
Expected
Payment/Receivable in
FOREX
Apply Purchasing
Power Parity Theorem
...
PURCHASING POWER PARITY
It is in the equilibrium the
rate of change in exchange
equals inflation rate
differential.
PPP ex...
DECISION MAKING USING PPP
INTEREST RATE PARITY
Interest rate parity has to
do with the idea that
money should earn an
equal rate of return.
Uses nom...
LEADING AND LAGGING
Leads and lags is the
alteration of settlement of
forex transaction because
of an expected change in
e...
COMPLIANCE
RBI Regulations
•Pay/Receive Forex within Certain period
•Maintain Separate NRI Account
•Convert Forex to Home ...
THE WORLD IS IN
YOUR HANDS
FRIENDS TEAM MEMBERS
Anusha
Dharmaraj
Dalen
D’Souza
Janardhan
Gouda
Jyothi
Vidyashree
Roopika
Shetty
Shinoj Isac
Shravan
K...
Forex markets
Forex markets
Forex markets
Forex markets
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Forex markets

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This presentation was prepared by my GMCS team during the GMCS 2 course at Mangalore Branch of SIRC of ICAI.

This presentation gives an overview regarding the Forex Market and how one can use the Forex instruments and thus be able to transact globally.

An approach to deal with Forex Instruments in order to have accurate decision making has been outlined. This approach explains as to how an investor may be able to use Purchase Power Parity and Interest Rate Parity Theorems in order to transact.

Published in: Business
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Forex markets

  1. 1. FOREX MARKETS
  2. 2. OUTLINE Forex and Forex Markets Investments and Risk Management in Forex Market
  3. 3. FOREX AND FOREX MARKET
  4. 4. WHY FOREIGN INVESTMENTS? To take advantage of economies of scale Foreign firms foster forward and backward economic linkages. Presence of foreign investors creates a multiplier effect Foreign investors are a boon to government to raise revenue and Employment Generation Maintain a proper balance amongst the factors of production by the supply of scarce resources The parent company enters into newer financial markets by its investments outside Develops closer political relationship between the home and the host country
  5. 5. RISKS (EXPOSURE) Transaction Risk •Measures the effect of an exchange rate on outstanding obligations Translation Risk •Refers to gains and losses caused by translation of Forex Assets and Liabilities into Home Currency Economic Risk •Extent to which the economic value of the company changes due to change in Forex Rates.
  6. 6. THE FOREX MARKET Forex Exchange Market • A Market for converting the currency of one country into the currency of another. Exchange Rate • The rate at which one currency is converted into another • Bid – Ask = Spread Types of Market • Over the Counter Market • Exchange Traded Market Uses of Market • To facilitate conversion of Currency • To Trade investments of Foreign currency • To manage Forex Exposure effectively
  7. 7. INSTRUMENTS IN THE FOREX MARKET Currency Forwards – OTC Loans - OTC Currency Swaps – OTC Currency Futures - Regulated Currency Exchange Traded Funds - Regulated Currency Options - Regulated
  8. 8. INVESTMENT AND DECISION MAKING IN THE FOREX MARKET
  9. 9. INVESTOR S APPROAC H TO FOREX RISK MANAGEM ENT Expected Payment/Receivable in FOREX Apply Purchasing Power Parity Theorem Expected Gain Hedge Using Futures or Forward Contract Expected Loss Apply Interest Rate Parity Theorem and obtain expected Forward Rate Hedge using Futures Hedge Using Forward Contract/Swaps High Risk Instrument = Options Low Risk and Investment Purpose = Exchange Traded Funds
  10. 10. PURCHASING POWER PARITY It is in the equilibrium the rate of change in exchange equals inflation rate differential. PPP expresses the idea that a bundle of goods in one country should cost the same in another country after exchange rates are taken into account.
  11. 11. DECISION MAKING USING PPP
  12. 12. INTEREST RATE PARITY Interest rate parity has to do with the idea that money should earn an equal rate of return. Uses nominal interest rates to analyze the relationship between spot rate and a corresponding forward rate
  13. 13. LEADING AND LAGGING Leads and lags is the alteration of settlement of forex transaction because of an expected change in exchange rates. Accelerating the transaction is known as "leads", while slowing it down is known as "lags". Leads will result when firms or individuals making payments expect an increase in the foreign-exchange rate, while lags arise when the exchange rate is expected to fall.
  14. 14. COMPLIANCE RBI Regulations •Pay/Receive Forex within Certain period •Maintain Separate NRI Account •Convert Forex to Home currency FEMA Regulations •Permitted Current Account Transactions •Permitted Capital Account Transactions •Person Resident in India/Person Resident outside India Income Tax Regulations •Complete and full disclosure of foreign assets and foreign interest in IT Returns •Transfer Pricing and Scrutiny Assessments
  15. 15. THE WORLD IS IN YOUR HANDS
  16. 16. FRIENDS TEAM MEMBERS Anusha Dharmaraj Dalen D’Souza Janardhan Gouda Jyothi Vidyashree Roopika Shetty Shinoj Isac Shravan Kumar Sneha Rao Bharath Rao Thank You

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