What is Foreign Exchange Meaning Of FOREX Types of Foreign Exchange Rates Major Currency

1. FOREIGN
EXCHANGE
PGDM Batch 2018-20
PUSHPENDRA SINGH

2. Meaning of FOREX
The term foreign exchange implies
two things: foreign currency and
exchange rate
 It is considered to be the largest financial
market in the world. Aside from providing
a floor for the buying, selling,
exchanging and speculation of
currencies, the forex market also
enables currency conversion for
international trade and investments.
 Open 24 Hours a Day, 5 Days a Week
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3. 3
Continued…
• The Foreign Exchange market is the largest financial market.
• Over $4 Trillion dollars worth of currency are traded each day
• The amount of money traded in a week is bigger than the entire
annual GPD of USA.
• The main currency used for trading $ US Dollar.

4. Traders
This global market has two tiers.
 The first is the interbank market. It's where
the biggest banks exchange currencies with
each other, even though it only has a few
members, the trades are enormous. As a
result, it dictates currency values.
 The second tier is the over-the-counter
market. That's where companies and
individuals trade. The OTC has become very
popular since there are now many companies
that offer online trading platforms.
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5. Types of Foreign
Exchange rates
Fixed Exchange rates
 A fixed, or pegged, rate is a rate the
government (central bank) sets and
maintains as the official exchange rate.
 A set price will be determined against a
major world currency (usually the U.S.
dollar, but also other major currencies such
as the euro, the yen or a basket of
currencies).
 In order to maintain the local exchange
rate, the central bank buys and sells its own
currency on the foreign exchange market in
return for the currency to which it is pegged.
Floating Exchange rates
 Unlike the fixed rate, a floating exchange rate is
determined by the private market through supply
and demand. A floating rate is often termed "self-
correcting," as any differences in supply and
demand will automatically be corrected in the
market.
 Look at this simplified model: if demand for a
currency is low, its value will decrease, thus
making imported goods more expensive and
stimulating demand for local goods and services.
This in turn will generate more jobs, causing an
auto-correction in the market.
 A floating exchange rate is constantly changing. 5

6. Types of Foreign
Exchange rates
Direct Exchange
rates Quote
 The quote is direct when the price of one
unit of foreign currency is expressed in
terms of domestic currency.
 Now, a lower exchange rate in a direct
quote implies that the domestic currency is
appreciating in value.
 In a direct quotation, the foreign currency is
the base currency and the domestic
currency is the counter currency.
Indirect Exchange
rates Quote
 The quote is indirect when the price of one
unit of domestic currency is expressed in
terms of foreign currency.
 a lower exchange rate in an indirect quote
indicates that the domestic currency is
depreciating in value as it is worth a smaller
amount of foreign currency.
 In an indirect quotation, it’s the other way
around. The domestic currency is the base
and the foreign currency is the counter.
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7. 7
Spot Exchange Rate Forward Exchange Rate
 The spot exchange rate is the
current exchange rate at any given
point in time.
 The forward exchange rate refers
to the exchange rate that is stated
and traded upon as of today but
earmarked for payment and
delivery at a future date.
Types of Foreign
Exchange
Exchange rates can also be classified into two types, namely spot, and forward
exchange rates.

8. 8
Major Currency Traded
• In forex trading, four major currency pairs are the most popular:
• EUR/USD: The euro and the U.S. dollar
• USD/JPY: The U.S. dollar and the Japanese yen
• GBP/USD: The British pound sterling and the U.S. dollar
• USD/CHF: The U.S. dollar and the Swiss franc

9. 9
Biggest Forex
Reserves
Source: IMF, 2018; *Central Bank of the Republic of
China)
3210
1259
804
501 460 459 424 403
0
500
1000
1500
2000
2500
3000
3500
IN
US
DOLLARS(BILLION)
COUNTRIES
Biggest Forex Reserves
Asian nations dominate foreign currency
reserves.
The United States had foreign currency
reserves of $123.5 billion as of August 2018.
The United Kingdom, which did not make the
list, had $187.4 billion in foreign reserves as of
August 2018.

10. 10
Factors Influencing Foreign
Exchange
As with any market the forex market is driven by supply and
demand
• If buyers exceed sellers, the prices go up
• If sellers outnumber buyers, prices go down
Affected by hedger, arbitrator, speculator

11. 11
Factors Influencing Foreign
Exchange
The following factors can influence exchanging rates:
• Central bank policy
• Balance of Payment
• Inflation Rate
• Interest rate
• Economic stability of the Country
• The Fiscal policy of the Government
• Political Affairs/Condition of the Country
• Terrorism and natural disasters

12. India’s Forex
reserves at its
peak
India's foreign exchange (forex)
reserves increased by $3.15
billion during the week in
November 1, official data showed
on Friday.
According to the Reserve Bank of
India (RBI)'s weekly statistical
supplement, the overall forex
reserves increased to $446.08
billion from $442.24 billion
reported for the week ended
November 3.
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13. THANK
YOU!
Pushpendra
Singh
PGDM Batch 2018-20