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A PROJECT REPORT ON
FOREIGN EXCHANGE MARKETS
• BY
Vikas Santosh Das
• GUIDED BY
Dr. Deepak Sable
OBJECTIVE OF STUDY
• Main Objective
 This Project attempt to study the intricacies of the foreign exchange market. The Main
purpose of this study is to get a better idea and the comprehensive details of foreign
exchange risk management.
• SUB OBJECTIVE
 To know about the various concept and technicalities in foreign exchange
 To know the various function of forex market
 To get the knowledge about the hedging tools used in foreign exchange.
The foreign exchange market (forex, FX, or currency
market) is a global decentralized market for the trading
ofcurrencies. This includes all aspects of buying, selling and
exchanging currencies at current or determined prices. In
terms of volume of trading, it is by far the largest market in
the world.[1] The main participants in this market are
thelarger international banks. Financial centres around the
world function as anchors of trading between a wide range of
multiple types of buyers and sellers around the clock, with the
exception of weekends. The foreign exchange market does
not determine the relative values of different currencies, but
sets the current market price of the value of one currency as
demanded against another
INTRODUCTION
WHAT IS FOREX?
• FOREX, an acronym for Foreign Exchange, is the largest financial market in the world.
With an estimated $1.5 trillion in currencies traded daily, Forex provides income to
millions of traders and large banks worldwide. The market is so large in volume that it
would take the New York Stock Exchange, with a daily average of under $20 billion,
almost three months to reach the amount traded in one day on the Foreign Exchange
Market.
• Forex, unlike other financial markets, is not tied to an actual stock exchange. Forex is an
over-the-counter (OTC) or off-exchange market.
THE 8 MAJOR CURRENCIES:
• Whereas there are thousands of securities on the stock market, in the FOREX market
most trading takes place in only a few currencies; the U.S. Dollar ($), European Currency
Unit (€), Japanese Yen (¥), British Pound Sterling (£), Swiss Franc (Sf), Canadian Dollar
(Can$), and to a lesser extent, the Australian and New Zealand Dollars. These major
currencies are most often traded because they represent countries with esteemed central
banks, stable governments, and relatively low inflation rates.
• Currencies are also always traded in pairs (i.e. USD/JPY or Dollar/Yen) at floating
exchange rates.
FUNCTIONS OF THE FOREIGN EXCHANGE
MARKETS
 The transfer of funds or purchasing power from one
nation and currency to another.
Demand for foreign currencies
-Import/expenditures abroad/investment abroad
Supply of foreign currencies
-Export/earnings from tourism/receipt of foreign investments
 the credit function
 the facilities for hedging and speculation
A 24 HOUR MARKET:
• The foreign exchange market operates 24 hours a day, and, unlike the stock market, has
no official openings or closings. It moves in response to geopolitical events, press
releases from key central banks, and reports on the economy from government statistical
bureaus, among many other factors. When traders are inactive in one part of the world
due to nightfall, there are traders elsewhere who are actively engaging in trades as it is
daytime in their locations.
THE DAILY SESSION "ENDS" AT 5PM EST, BUT THE
MARKET DOES NOT ACTUALLY CLOSE. THE FOREX
MARKET ONLY CLOSES ON FRIDAY AT 4PM EST FOR
THE WEEKEND, AND RE-OPENS AT 5 PM EST ON
SUNDAY. EACH DAY, TRADING BEGINS IN SYDNEY,
AUSTRALIA, AND PROGRESSES TO THE NEXT MAJOR
FINANCIAL CENTER (TOKYO, LONDON, NEW YORK),
AS THE BUSINESS HOURS IN THAT CITY'S TIME ZONE
BEGIN.
CALCULATIONS OF EXCHANGE RATES
• Travelling Means Participating In Foreign ExchangeIf you are an American traveling to
Italy, you too have domestic money that you need converted into a foreign currency.
Suppose the currency exchange booth informs you that it costs 1.34 US Dollars to receive
1 Euro. The exchange rate at this time between the two currencies is 1.34 $/€
(dollars/euro).
• In Forex notation the currency pairs are flipped when quoted, therefore the above rate is
written - 1.3400 EUR/USD. It takes 1.3400 of the bottom currency in a pair (USD), the
"counter currency", to get 1 of the top currency in a pair (EUR), the "base currency".
CONCLUSION
• As we can see from these examples, the Forex market has periods when it is quiet and
calm, and periods of high activity. We saw the Dollar strengthen then weaken against two
different currencies concurrently. We have also shown how closing a position depends on
the situation, the trader, and his or her plan beforehand. What would you do next if you
had these positions open? Would you close them right away, or would you wait to see if
the trends will continue?
• Well, you can see if you would have been correct by registering for a practice account,
and using VT Trader to go back to the end of October 2006 to see what happened next.
• We hope these examples provide you with some clarity on how positions move up and
down, and how money can be made or lost trading Forex.
BIBLIOGRAPHY
• http://www.cmsfx.com/forex-education/online-forex-
course/chapter-3-technical-tools/technical-
analysis/concept-support-and-resistance/index.html
• https://en.wikipedia.org/wiki/Foreign_exchange_market
• http://www.regulationbodyofknowledge.org/docume
nts/160.pdf

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Foreign exchange markets

  • 1. A PROJECT REPORT ON FOREIGN EXCHANGE MARKETS • BY Vikas Santosh Das • GUIDED BY Dr. Deepak Sable
  • 2. OBJECTIVE OF STUDY • Main Objective  This Project attempt to study the intricacies of the foreign exchange market. The Main purpose of this study is to get a better idea and the comprehensive details of foreign exchange risk management. • SUB OBJECTIVE  To know about the various concept and technicalities in foreign exchange  To know the various function of forex market  To get the knowledge about the hedging tools used in foreign exchange.
  • 3. The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading ofcurrencies. This includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of volume of trading, it is by far the largest market in the world.[1] The main participants in this market are thelarger international banks. Financial centres around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market does not determine the relative values of different currencies, but sets the current market price of the value of one currency as demanded against another INTRODUCTION
  • 4. WHAT IS FOREX? • FOREX, an acronym for Foreign Exchange, is the largest financial market in the world. With an estimated $1.5 trillion in currencies traded daily, Forex provides income to millions of traders and large banks worldwide. The market is so large in volume that it would take the New York Stock Exchange, with a daily average of under $20 billion, almost three months to reach the amount traded in one day on the Foreign Exchange Market. • Forex, unlike other financial markets, is not tied to an actual stock exchange. Forex is an over-the-counter (OTC) or off-exchange market.
  • 5. THE 8 MAJOR CURRENCIES: • Whereas there are thousands of securities on the stock market, in the FOREX market most trading takes place in only a few currencies; the U.S. Dollar ($), European Currency Unit (€), Japanese Yen (¥), British Pound Sterling (£), Swiss Franc (Sf), Canadian Dollar (Can$), and to a lesser extent, the Australian and New Zealand Dollars. These major currencies are most often traded because they represent countries with esteemed central banks, stable governments, and relatively low inflation rates. • Currencies are also always traded in pairs (i.e. USD/JPY or Dollar/Yen) at floating exchange rates.
  • 6. FUNCTIONS OF THE FOREIGN EXCHANGE MARKETS  The transfer of funds or purchasing power from one nation and currency to another. Demand for foreign currencies -Import/expenditures abroad/investment abroad Supply of foreign currencies -Export/earnings from tourism/receipt of foreign investments  the credit function  the facilities for hedging and speculation
  • 7. A 24 HOUR MARKET: • The foreign exchange market operates 24 hours a day, and, unlike the stock market, has no official openings or closings. It moves in response to geopolitical events, press releases from key central banks, and reports on the economy from government statistical bureaus, among many other factors. When traders are inactive in one part of the world due to nightfall, there are traders elsewhere who are actively engaging in trades as it is daytime in their locations.
  • 8. THE DAILY SESSION "ENDS" AT 5PM EST, BUT THE MARKET DOES NOT ACTUALLY CLOSE. THE FOREX MARKET ONLY CLOSES ON FRIDAY AT 4PM EST FOR THE WEEKEND, AND RE-OPENS AT 5 PM EST ON SUNDAY. EACH DAY, TRADING BEGINS IN SYDNEY, AUSTRALIA, AND PROGRESSES TO THE NEXT MAJOR FINANCIAL CENTER (TOKYO, LONDON, NEW YORK), AS THE BUSINESS HOURS IN THAT CITY'S TIME ZONE BEGIN.
  • 9. CALCULATIONS OF EXCHANGE RATES • Travelling Means Participating In Foreign ExchangeIf you are an American traveling to Italy, you too have domestic money that you need converted into a foreign currency. Suppose the currency exchange booth informs you that it costs 1.34 US Dollars to receive 1 Euro. The exchange rate at this time between the two currencies is 1.34 $/€ (dollars/euro). • In Forex notation the currency pairs are flipped when quoted, therefore the above rate is written - 1.3400 EUR/USD. It takes 1.3400 of the bottom currency in a pair (USD), the "counter currency", to get 1 of the top currency in a pair (EUR), the "base currency".
  • 10. CONCLUSION • As we can see from these examples, the Forex market has periods when it is quiet and calm, and periods of high activity. We saw the Dollar strengthen then weaken against two different currencies concurrently. We have also shown how closing a position depends on the situation, the trader, and his or her plan beforehand. What would you do next if you had these positions open? Would you close them right away, or would you wait to see if the trends will continue? • Well, you can see if you would have been correct by registering for a practice account, and using VT Trader to go back to the end of October 2006 to see what happened next. • We hope these examples provide you with some clarity on how positions move up and down, and how money can be made or lost trading Forex.