FOREIGN EXCHANGE MARKET

Students of SYBFM presents the topic:-

GROUP MEMBERS

POOJA PARIKH DIVYA RAJA PRIYANKA PATIL KRIMA HINAL PATEL

(521) (520)

INTRODUCTION
Financial

market huge for trading of world currencies. It has been working since the 70s of the twentieth century Daily volumes exceeds 4 trillion dollars Main currency US$

According to Kindleberger, "It is place where foreign moneys are bought and sold. The foreign exchange market provides the foreign currency against any national currency

UNIQUENESS OF FOREX MARKET

Its

huge trading volume, leading to high liquidity Its geographical dispersion Its continuous operation: 24 hours a day except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday The variety of factors that affect exchange rates The low margins of relative profit compared with other markets of fixed income The use of leverage to enhance profit margins with respect to account size

HISTORY
Historically the value of goods was expressed through some other goods In different places everything from teeth to jewelry has served this purpose but later metals, and especially gold and silver, were introduced as an accepted means of payment, and also a reliable form of value storage. Coins were basically minted from the metal, but stable political systems introduced a paper form of IOUs (I owe you) Before First World War most central banks supported currencies with gold.

Closure to the the end of second world war the Bretton woods agreement was signed in July in US 1944 The Bretton Woods agreement resulted in a system of fixed exchange rates The Bretton Woods system came under increasing pressure as national economies moved in different directions during the sixties The EEC (European Economic Community) introduced

FUNCTIONS
A. B. C. D. E. F. G.

Transfer function Credit function Hedging Primary function International transactions Currency value Investment

ADVANTAGES OF FOREX
1. 2. 3. 4. 5.

High leverage No commission High liquidity Profitability 24hrs trading

DISADVANTAGES OF FOREX
1. 2.

High leverage 24hrs trading

MARKET SIZE
As

of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion The $3.98 trillion break-down is as follows: $1.490 trillion in spot transactions $475 billion in outright forwards $1.765 trillion in foreign exchange swaps $43 billion currency swaps $207 billion in options and other products

FOREX INSTRUMENTS
SPOT

ETFs

FORWARD

Forex instruments

OPTION

FUTURE

SWAP

CURRENCIES TRADED

Major
EURO USD $ GBP CHF Sfr

Minor
AUS $ NZD $ CAN $ INR Rs.

CURRENCIES TRADED
Rank 1 2 3 4 5-6 5-6 5-6 7 8 9-10 Currency United States dollar Euro Japanese yen Pound sterling Australian dollar Swiss franc Canadian dollar Hong Kong dollar Swedish krona New Zealand dollar Other currencies Total % Daily share 84.9 39.1 19.0 12.9 7.6 6.4 5.3 2.4 2.2 1.6 18.6 200

WORKING OF FOREX
Interbank quotations are given as :y y y y

Bid Ask (also referred to as offer) Price maker Price taker

Quotes
Example : The exchange rate between US dollars and the Swiss franc is normally stated :

CHF/USD: Fr 1.6000 (European terms) USD /CHF : $ 0.6250 (American terms)

CONTD
Transactions Settlement
y y

NOSTRO VOSTRO

SWIFT (Society for Worldwide Interbank Financial Telecommunications) NET OPEN POSITION- (NOP)
y y

NAP also called LONG or Overbought

position.

NLP also called SHORT or Oversold

position.

MARKET PARTICIPANTS
The foreign exchange market consists of two tiers:
The interbank or wholesale market (multiples of $1MM USD or equivalent in transaction size) y The client or retail market (specific, smaller amounts)
y

Five broad categories of participants operate within these two tiers;

y y y y y

1. Bank and Nonbank Foreign Exchange Dealers 2. Individuals and Firms 3. Speculators and Arbitragers 4. Central Banks and Treasuries 5. Foreign Exchange Brokers

RBIS ROLE IN FOREX MARKET

1. 2. 3. 4. 5.

Exposure Limit Treasury operations at RBI RBIs Monitoring Intervention Foreign Exchange Exposure Limit(FEEL)

TOP TRADERS OF THE MARKET (MAY 2010)

Rank 1 2 3 4 5 6 7 8 9 10 Name Deutsche Bank UBS AG Barclays Capital Citi Bank Royal Bank of Scotland JP Morgan HSBC Credit Suisse Goldman Sachs Morgan Stanley Market Share(%) 18.06 11.30 11.08 7.69 6.50 6.35 4.55 4.44 4.28 2.91

Rank

Countries

COUNTRIES HAVING RESERVEof People's Republic S 1 China (2010)

2 3 4 5 6 7 8 9 10 11 12 13 14 Japan Eurozone Russia Republic of China (Taiwan) Saudi Arabia India South Korea Brazil Hong Kong Switzerland Singapore Germany Thailand Algeria Italy

Billion US$(end of month) $ 2648.3 (Sep 2010) $1118.1 (Oct 2010) $ 753 (Sep 2010) $ 497.082 (Nov 2010) $ 383.38 (Sept 2010) $ 410 (Dec 2009) $ 300.214 (Nov 4, 2010) $ 293.35 (October 2010) $ 287 (Oct 2010) $ 266.1(Sep 2010) $ 250 (Aug 2010) $ 221.4 (Oct 2010) $ 221.4 (Oct 2010) $ 159.1 (Sep 2010) $ 157 (Sep 2010) $ 144 (June 2010)