THE FOREIGN

EXCHANGE
MARKET
MEANING OF
FOREIGN
EXCHANGE
The FOREX market provides the
physical and institutional structure
through which the money of one
country is exchanged for that of
another country,

A foreign exchange transaction is
an agreement between a buyer and
a seller that a fixed amount of one
currency will be delivered for some
other currency at a specified rate ABOUT A FACT
RELETED TO FOREX
MARKET
The forex market is the
worlds 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 GDP of
the United States!

NATURE OF
FOREIGN
EXCHANGE
Affected by demand and supply.
Affected by rate of interest.
Affected by balance of payment
surplus and deficit.
Affected inflation rate.
Spot and forward rates are
different.
Affected by the economic
stability of the country.
Affected by the fiscal policy of
the government.
Affected by the political
condition of the country.

ADVANTAGES OF
FOREX MARKET
Its already the worlds largest
market and its still growing
quickly
It makes extensive use of
information technology making
it available to everyone
Traders can profit from both
strong and weak economies
The market is open 24 hours a
day during weekdays

FOREIGN EXCHANGE MARKET
PARTICIPANTS
ECONOMIC AGENTS AND TYPES OF
ACTIVITIES ON FOREIGN EXCHANGE
MARKETS
Client buys $
with
Local bank
Main banks
interbank market
Local bank
Client buys
with $
Purchases and sales
of big multinational
companies

Brokers
MARKET
PARTICIPANTS
Central banks participate in the foreign
exchange market to align currencies to
their economic needs.
All Scheduled Commercial Banks
(Authorized Dealers only).
Reserve Bank of India (RBI).
Corporate Treasuries.
Public Sector/Government.
Inter Bank Brokerage Houses.
Resident Indians
Non Residents
Exchange Companies




TOP 10 CURRENCY
TRADERS AS ON MAY
2012 ARE
THE FOREIGN
EXCHANGE RATE
Definition- An exchange rate
quotation is the price of a
currency stated in terms of
another.
For eg. Rs 61/ $
This means that price of one
dollar is Rs 61.
Major currencies of the World
USD, EURO, YEN, POUND

EXCHANGE RATES
Fixed Exchange Rate
System:-

Fixed rates provide greater certainty
for exporters and importers.
Flexible Exchange Rate
System:-

Flexible exchange rate or floating
exchange rates change freely and
are determined by trading in the
forex market.

FOREIGN EXCHANGE BROKERS
Foreign exchange brokers are
agents who facilitate trading
between dealers without
themselves becoming
principals in the transaction


For this service they charge a
small commission

OPERATION OF FOREIGN
EXCHANGE MARKET
Foreign exchange market operates either as:-

Spot Market: (Current Market):-

The market where the purchase and sale of
currencies is contracted for spot delivery is called
the Spot Market.

Spot Exchange Rate is denoted by S (.) e.g. S
(Rs./$) = Rs.46.85/$

OR,
Forward Market:

The exchange rates for delivery and payment at
specified future dates are called Forward
Exchange Rates and is denoted by F(.)

For example,

60 days F (Rs./$) : forward rate between rupees
and dollar is the rate at which the foreign
exchange dealer can arrange a transaction
between rupees and dollar 60 days hence


BID AND ASK
QUOTATIONS
Interbank quotes are given as a
bid and ask
The bid is the price at which a
dealer will buy another currency
The ask or offer is the price at
which a dealer will sell another
currency