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Foreign Exchange Market Presentation

Foreign Exchange Market Presentation


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Published by: man007mba3747 on Mar 23, 2009
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Foreign Exchange Market
y Foreign exchange means the money of a foreign country; that is, foreign currency bank balances, banknotes, checks and drafts. y 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 date.

Foreign Exchange Market
y The Foreign Exchange Market Provides: 
The physical and institutional structure through which

the money of one country is exchanged for that of another country 
The determination rate of exchange between currencies  Is where foreign exchange transactions are physically


Functions of the Foreign Exchange Market
y The foreign exchange Market is the mechanism by which participants: 
Transfer purchasing power between countries  Obtain or provide credit for international trade

Minimize exposure to the risks of exchange rate changes

Participants in the Foreign Exchange Market
y All Scheduled Commercial Banks (Authorized Dealers only). y Reserve Bank of India (RBI). y Corporate Treasuries. y Public Sector/Government. y Inter Bank Brokerage Houses. y Resident Indians y Non Residents y Speculators and Arbitragers

Foreign Exchange Regime
y Fixed:

-Austria, France, Italy, Spain y Pegged: -Thailand, S. Korea y Managed Float: -India, Bangladesh, Singapore y Free Floating: -USA, UK, Japan

What is exchange rate ?
Exchange Rate is the price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another. e.g. Rs. 51.42 per one USD Major currencies of the World 
USD EURO YEN GBP CAN $ Swiss Franc Aus $

How Foreign Exchange Rates are Determined?

Types of Market
y Spot Market: 

Currencies traded for immediate delivery at rates prevailing at the time of transaction  Actual delivery (electronic transfer) may take two working days

Types of Market Contd .
y Forward Market: 

In the forward market, contracts are made to buy & Sell currencies for future delivery, say one month two month ,three month & so on.  The rate of exchange for the transition is agree is agreed upon the very date the deal is finalized.

Global Foreign Exchange Market Turnover
800 700 600 500 400 300 200 100 0 1989 1992 1995 1998 2001 Spot Forwards Swaps

Source: Bank for International Settlements, ³Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2001,´ October 2001, www.bis.org.


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