Foreign Exchange Markets

1. Foreign Exchange
Market Structure
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2. Structure of Foreign Exchange Market
Nature of foreign exchange (Forex) market
• Electronic market
• Geographical dispersal
• Transfer of purchasing power
• Presence of Intermediaries
• Provision for credit
• Omni present
• No specific timing and open for 24 hours
• Quote system (Bid - Ask)
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3. Foreign Exchange Market
It is the market for exchange of domestic
currency with foreign currency or exchange
of any foreign currencies at an agreed or
fixed rate through a common platform
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4. Participants Forex Market
• Brokers
• Buyers
• Sellers
• Liquidity Providers: Banks
• Regulators
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5. Brokers in Forex Market
Dealing Desk
• Market Makers
No Dealing Desk
• Straight Through Processing (STP)
• Electronic Communications Network (ECN)
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6. Buyers and Sellers in Forex Market
Based on Need
1) Government
2) Exporters
3) Importers
4) Tourists
5) Foreigners
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Based on Motive
1) Speculators
2) Traders
3) Hedgers
4) Investors
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7. Liquidity Providers
Bankers like
1) Goldman Sachs
2) Bank of America
3) JP Morgan
4) Citi Bank
5) Nomura
6) HSBC
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8. Regulators in Forex Market
• Central Banks
• Government Sponsored Organizations
• Constitutional rules and regulations
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9. Types of Forex Markets
Based on Volume and Liquidity
Tier I
RBI – Banks or Autorised Dealers (ADs)
Tier II
Inter bank market or ADs Market
Tier II
Banks - Retail
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10. Types of Forex Markets
Based on Transaction
• Spot Market – Spot transaction
• Forward Market – Forward transaction
• Swap Market – Swap transaction
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11. Types of Forex Markets
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12. Spot Market – Spot transaction
• Also known as cash market
• Immediate delivery
• Immediate Settlement
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13. Forward Market
• Settlement is for a future period of time
• Price is different when compared to spot
• Risk elements exist
• Price risk
• Default risk
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14. Swap Market
Simultaneous purchase and sale of two
different currencies of identical amounts or
one currency with 2 different value dates.
Example
1) Buy USD for 71.50 in Spot.
2) Sell USD For 72.35 in 1 month forward.
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15. Thank You
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