Foreign exchange markets

• 1. FOREIGN EXCHANGE MARKETS
  

2. Contents
What is Foreign Exchange Markets?
Different players
History
Relevant acts
Need
Types
Factor influencing foreign exchange rate
Turnover
Foreign exchange reserves
Risk
3. Foreign exchange market
It is the place where one currency is bought or sold for another currency
The foreign exchange market (forex) is a worldwide decentralized over-the-counter financial market for the trading of currencies
4. Different players
5. History: Pre Liberalization
India was under fixed exchange rate regime till March 1992; it was adjusted by the Central Bank
The exchange rate was continuously adjusted by small margins to adjust with
Changing inflation rates
International economic changes
Trade requirements
6. History:postliberalisation
Rupee was made partially convertible on the current account
Dual exchange rate system:
40% at official exchange rate
60% at marketexchange rate
In 1993, this dual exchange rate system was removed and a single market determined exchange rate prevailed
7. Foreign Exchange Rates
Fixed exchange rates
Bretton Woods System
Nixon Shock
Floating Exchange Rates
8. Relevant acts
9. 10. Need for foreign exchange market
11. Types of foreign market
12. Features of spot market
Simplest way to meet foreign currency requirements
Risk of exchange rate fluctuations
No certainty of the rate until the transaction is carried out
Larger the amount being dealt, better the spot rate that can be received
Spot deal settles in two working days after the deal is struck
13. Features of forward market
Requires a more complicated calculation
Protects against unfavorable movements
Contracts are available for any period up to two years
14. Factors influencing forex rate
Business cycles
Political developments
New tax laws
Stock market news
Inflationary expectations
International investment patterns
Government and central bank policies
15. Turnover per day (as of dec10)
Source: World Bank, World Development Indicators
16. Foreign exchange reserves
Foreign Exchange Reserves of various countries (July 2010)
17. Source: World Bank, World Development Indicators
18. Foreign Exchange reserves of india
19. Risk
Risk refers to the variability in investments value due to changes in currency exchange rates
Managing risk is central to successful investment in the forex market
Types of Risks
Transaction
Economic
Translation
20. Risk (Contd.)
Transaction Risk:
Trade Transactions: Export and Import
Financial Transactions: Borrowing and Lending
Payments & Receipts of dividend and interest
21. Risk (contd.)
Translational Risk:
Known as Consolidated Risk also
It refers to assets and liabilities of a Balance Sheet denominated in Foreign Risk
Comes into picture when foreign subsidiary is transferred to domestic country
22. Risk (contd.)
Economic Risk:
Risk involved due to the future changein exchange rate
Methods to calculate Risk
Current/Non Current method
Monetary/Non Monetary method
Closing Rate Method
Temporal Method
23. SUBMITTED by
GROUP 3
Suresh Kumar Kiran
K.P.V.S.Thushar
Muruganantham R
Deepesh T
Shiv