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Forex Market
Forex Market
WHAT IS MARKETS ?
TYPES OF MARKETS
There are 4 types of markets. They are-:
•Capital Market
It provides long-terms funds with maturities exceeding 1year to
make transactions.
•Financial Market
It provides financial services in the market
•Money Market
It deals with short term funds having maturities of 1year or less.
What is ForEx ?
Definition-
• Foreign exchange is the mechanism by which
the currency of one country gets converted into
the currency of another country.
• Coins
• Value of goods was expressed in term other coins
• Currency
• Gold & coins convertibility into currency
• Value of goods was expressed in term of other
currency
administration of foreign
exchange
FOREIGN EXCHANGE MANAGEMENT ACT
CENTRAL GOVERNMENT
FEDAI
AUTHORISED PEARSONS
• BALANCE OF PAYMENT
• INFLATION
• MONEY SUPPLY
• INTEREST RATE
• NATIONAL INCOME
• RESOURCE DISCOVERIES
• POLITICAL FACTORS
Foreign Currency Accounts
FOREIGN
CURRENCY
ACCOUNT
• VOSTRO ACCOUNT :
YOUR ACCOUNT WITH US.
• LORO ACCOUNT :
THEIR ACCOUNT WITH YOU.
ForEx Transactions
FOREX
TRANSACTION
PURCHASE SALE
BANK BANK
PART WITH
ACQUIRE FOREIGN PART WITH HOME ACQUIRE HOME FOREIGN
CURRENCY CURRENCY CURRENCY
CURRENCY
ForEx Transactions
EXCHANGE QUOTATION
DIRECT INDIRECT
“BUY LOW; SALE HIGH” “BUY HIGH;SALE LOW”
Foreign Exchange Market
Foreign Exchange Market
Features-
•Market where foreign currencies are traded
•Round the clock market
•Global market
•Large volume of transactions
Participants
•Individuals: tourists, migrants
•Firms: importers and exporters
•Banks: short position, long position, square
position
•Governments/ monetary authorities: market
intervention
• International agencies: lending
Two tier market:
First tier: ultimate customer and banker
Second tier: between banks
KINDS OF FOREIGN EXCHANGE
MARKETS
From the point of view of foreign exchange
Market Transactions there are following types
of Markets-
•Spot market
•Forward market
•Derivatives markets: currency futures and
options
SPOT MARKETS
•Currencies traded for immediate delivery at
rates prevailing at the time of transaction
•Actual delivery (electronic transfer) may take
two working days
•Currency arbitrage: buying a currency at
cheaper rate in one market and selling at a
higher rate in another market
-Two point arbitrage
-Triangular (three point) arbitrage – three
currencies
•Currency speculation: buying and holding a
currency for sale at a higher rate in the near
future
FORWARD MARKETS
•Credit risk
-Replacement risk
-Settlement risk
•Country Risk
Thank you