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Foreign exchange market
- 1. Foreign Exchange Market GROUP 10: ฤINH THI HUONG LE THI TRANG NGO THI THUY TRAN THI HUONG GIANG DO THI THANH THAO
- 2. CONTENT: What isthe FX market? Exchange rate Role of the bank in FX
- 3. What is theForex Market? The Forex Market is a net work of buyers and sellers operating without where one currency is transferred for another currency between participants at agreed upon prices. Forex is stand for phrase a centralized exchange Forex market is market currencies between banks was established in when floating exchange rate are specified Foreign Exchange 1971
- 4. What is theForex Market? Traders include: banks, central banks, institutional investors, currency speculators, corporations, governments, retail investors,.. This is $ 1 Trillion The daily volume of FX market is $ 5 Trillion Largest and most liquid financial market in the world.
- 5. What is theForex Market? Forex does not have a financial center or any transaction. The foreign exchange market is the market "interbank", and based on electronic transactions between systems linked together banks operates 24 hours a day
- 6. What is theForex Market? Currencies are bought and sold in units called lots 1 lot = 100,000 units of the base currency 1 lot of EUR/USD = โฌ1 (1 Euro) X 100,000 Standard symbols for most commonly traded currencies: EUR โ Euro USD โ United States dollar CAD โ Canadian dollar GBP โ British pound HKD โ Hong Kong dollar JPY โ Japanese yen AUD โ Australian dollar CHF โ Swiss franc NZD โ New Zealand dollar SEK โ Swedish krona Currencies are traded in pairs GBP/USD or USD/JYP
- 7. Exchange Rate Arate of exchange is the price of one currency in terms of another; rates are quoted in two ways: 1. A variable number of units of foreign currency to a fixed number of units of home currency: e.g. euro 1.4640 = ยฃ1; or Hong Kong dollars 14.14.4531= ยฃ1. This type of rate quotation is termed an โindirect rateโ 2. A number of units of home currency to one unit of overseas currency: e.g. quotations in euros are quoted to one unit of overseas currency. This type of quotation is termed a โdirect rateโ. A Spot rate is the rate of exchange for a foreign currency transaction which is to be settled within two working days of agreeing the rate. A Forward rate is a rate of exchange which is fixed โnowโ for a deal which will take place at a fixed date or between two days in the future.
- 8. Exchange Rate FIXEDEXCHANGE RATE A fixed exchange rate system is one where the value of the exchange rate is fixed to another currency. This means that the government have to intervene in the foreign exchange market to maintain the fixed rate Revaluation - describes an upward movement in an exchange rate, but in a fixed exchange rate system. This will be a very infrequent event (if ever) and means the government has deliberately changed the fixed value of the exchange rate upwards. Devaluation - this means that the government has changed the fixed rate of a fixed exchange rate downwards.
- 9. Exchange Rate FLOATINGEXCHANGE RATE Where the exchange rate is floating (as are all major currencies in the world), it will be determined by market forces - that is supply and demand. As in any other market, the rate will change constantly to reflect how much of the currency is being traded. Appreciation - this describes an upward movement in a freely floating exchange rate. This may occur day by day or perhaps even minute by minute. Depreciation - this describes a downward movement in a floating exchange rate.
- 10. Exchange Rate Speculation Balance of payment Exchange rate Policy Monetary Supply The key factors affect Exchange Rate
- 11. Exchange Rate BOPwill record: Import Export Inflow of foreign investment Foreign revenue If the foreign revenue is larger than payment, there will be a larger supply of foreign currencies. If the foreign payment is larger than revenue, then the demand for foreign currencies will be higher
- 12. Exchange Rate Speculation Political and economic situation
- 13. Exchange Rate Moneysupply DEFINITION HOW IT WOULD AFFECT ON FOREIGN EXCHANGE RATE
- 14. Definition ๏ต themoney supply is commonly defined to be a group of safe assets that households and businesses can use to make payments or to hold as short-term investments. ๏ต It is known as a floating exchange rate since it floats according to supply and demand. Fluctuation in exchange rates are caused by an excess of supply over demand, vice versa. ๏ต Also called money stock
- 15. How it caneffect ๏ตA country's exchange rate is typically affected by the supply and demand for that country's currency in international exchange markets. ๏ต If demand exceeds supply, then the value of the currency will go up. If however, the supply of the currency exceeds demand, then its value will go down.
- 16. Exchange rate policy ๏ต ER policy is a system of instruments used to influence the supply and demand of foreign currency in the market which helps to adjust the exchange rate in order to achieve the necessary goals.
- 17. The instrument ofexchange rate policy ๏ตDiscount rate method: This method is often used to adjust the exchange rate on the market. With this method, when the exchange rate reaches an alarming rate, the central bank must intervene raise interest rates discount. Due to the discount rate rise, therefore discount interest rates in the market have also increased. As a result, short-term loans on the world market will be put on to higher interest.
- 18. The instrument ofexchange rate policy ๏ต The operations of the foreign exchange market: Through the buying and selling of foreign currency exchange rate adjustment is one of the most important measures of the state to maintain stable purchasing power of national currencies. This measure is a direct impact on the exchange rate.
- 19. The instrument ofexchange rate policy ๏ต Reserves to stabilize the exchange: Funds to establish reserves to stabilize the exchange usually consists of treasury bonds issued in the national money. As in many foreign currencies, then use the funds to buy in order to limit the level of depreciation of the exchange Conversely, in the case of foreign loans to run the exchange stabilization fund launched sold foreign currency to continue purchase of bonds issued to prevent exchange rose
- 20. The instrument ofexchange rate policy ๏ต Purpose of government intervention - Maintaining stable economic environment - Affect to BOP and maximize profits international integration - Strategic direction for economic with benefit
- 21. Role of bankin FOREX market Role of bank in FOREX market Central bank Commercial bank
- 22. Role of bankin FOREX market Central bank โข As custodians of the monetary system - and the owner's bank reserves national foreign exchange โข The central bank has regularly intervened in the foreign exchange market with two status: - Central banks conduct foreign exchange operations to balance the its customers - Monitoring of market activity within the framework of law provisions with the intervention
- 23. Role of bankin FOREX market Commercial bank โข Trading on behalf of clients or on behalf of itself. โข Bank foreign exchange transactions conducted with two goals: โข + Trading business for yourself โข + Provides services for customers
- 25. Thank you forlistening
Editor's Notes
- #8ย It is the market rate on the day the rate is agreed; it should be noted that the spot rate of exchange can fluctuate quite dramatically from day to day and therefore for continuing trade it is not a basis upon which to work. A Fixed Forward contract is where the future date at which the transaction will take place is fixed. An Option Forward contract is where the time at which the transaction will take place is any time within a specified period.
- #9ย In Figure 1 below, the equilibrium is above the fixed rate. There is a shortage of the national currency at the fixed rate. This would normally force the equilibrium exchange rate upwards, but the rate is fixed and so cannot be allowed to move. To keep the exchange rate at the fixed rate the government will need to intervene. They will need to sell their own currency from their foreign exchange reserves and buy overseas currencies instead. This has the effect of shifting the supply curve to S2 and as a result, their foreign currency holdings will rise. In Figure 2, the opposite is true - the equilibrium rate is below the fixed rate. This means that there is a surplus of the national currency. The government will need to buy this surplus if they are to prevent the currency from falling - in other words keep it at the fixed rate. When they buy the currency they will be selling from their foreign currency reserves and so these will fall, but the demand for domestic currency will rise.
- #10ย If the supply of a currency exceeds the demand for it, its value will fall in the foreign exchange market.ย On the other hand, if the demand for a currency exceeds its supply, then its value will rise.ย An increase in the supply of one currency is simultaneously an increase in demand for the other. When people in Europe supply euros to demand dollars in order to purchase U.S. products, the exchange value of the euro depreciates and the dollar appreciates, all other things held constant.
- #12ย When all these transactions are consolidated into a table of international balance of payments, this would become the countryโs foreign exchange balance of payments
- #14ย When all these transactions are consolidated into a table of international balance of payments, this would become the countryโs foreign exchange balance of payments
- #15ย It is the market rate on the day the rate is agreed; it should be noted that the spot rate of exchange can fluctuate quite dramatically from day to day and therefore for continuing trade it is not a basis upon which to work. A Fixed Forward contract is where the future date at which the transaction will take place is fixed. An Option Forward contract is where the time at which the transaction will take place is any time within a specified period.
- #16ย It is the market rate on the day the rate is agreed; it should be noted that the spot rate of exchange can fluctuate quite dramatically from day to day and therefore for continuing trade it is not a basis upon which to work. A Fixed Forward contract is where the future date at which the transaction will take place is fixed. An Option Forward contract is where the time at which the transaction will take place is any time within a specified period.