FOREX

MEANING: The foreign exchange market is a market

where foreign currencies are bought and sold.
Ex:if an Indian importer imports goods from USA
and has to make payments in US dollars.
• The purpose of FOREX is to help international
trade and investment.
• A FOREX market helps business convert one
currency to another.
• In a typical foreign exchange transaction a
party purchases a quantity of one currency by
paying a quantity of another currency.
• The foreign exchange market started forming
during the 1970s.
• The FOREX is unique because of:-
- Its trading volumes
- The extremely liquidity of the market
- Its geographical dispersion
- Its long trading hours ,24hours a day
- The low margins of profit compared with
other market or fixed income. but profits can
be high due to very large trading volumes.
 Trading Characteristics
• It is called as the over counter market (OTC)
• There is no single unified foreign exchange
market
• There are rather a number of interconnected
marketplaces ,where different currency
instruments are traded.
• The main trading centers are in London, New
york,Tokyo,Hongkong,Singapore,but banks
throughout the world participate.
 Cont……….
• There is little or no “inside information” in the
foreign exchange market.
• Exchange rates fluctuations are usually caused
by actual monetary flows as well as by
expectations of change in monetary flows
caused by changes in GDP growth, Inflation,
interest rates, budget and trade deficits or
surpluses and other macro-economic
conditions.
 Cont……
• Major news is released publicly, often on
scheduled dates , so that many people have
access to the same news at the same time.
 Market size and Liquidity
• Presently, the FOREX is one of the largest and
liquid financial markets in the world.
• Traders include large banks, currency
speculators, corporations, governments and
other financial institutions.
• The average daily volume in the global foreign
exchange and related market is continuously
growing.
 Cont………..
• Daily turnover was reported to be over US$
3.2 trillion in Apr.2007 by the bank for
international settlements.
• Of the daily global turnover ,trading in London
accounted for 34.1% of the total. London by
far the global center for foreign exchange.
• In second and third places respectively,
trading in Newyork 16.6% and Tokyo 6.0%
 Major participants…
The participants in the foreign exchange market
are:-
• Individuals
• Firm
• Banks
• Governments
• International Agencies
 Cont……
• There are two tier system in the foreign
exchange market.
• One involves the transactions between the
ultimate customer and bank.
• Other consists of the transaction between the
banks
 Structure of the FOREX
• The foreign exchange market in india consists of
three tier system
• The first consists of transactions between RBI and
the Authorized Dealers(ADs)
• Second tier is the inter bank market in which the
Ads deal with each other
• Third tier consists of transactions between Ads
and their corporate customers
• The daily turnover in the Indian foreign exchange
market is currently estimated to be between USD
1.5 – 3 billion.
 Cont……..
• The most important center is Mumbai.
• Other active centers are Delhi, Kolkata,
Chennai, Cochin and Bangalore
 Trade currency mechanics
• The main actors in the forex market are the
primary market makers who trade on their own
account and make a two-way bid offer market.
• They deal actively and continuously with each
other and with their clients, central banks and
sometimes with currency brokers.
• The ISO has developed three letter codes for all
currencies which abbreviate the name of the
country as well as currency.
For Example:-
• USD
• GBP
• JPY
• CAD
• EUR
• CHF
• AUD
• SEK
• NLG
• BEF
• FRF
• ESP
• INR
• DEM
• ITL
• SAR