16.

FOREIGN EXCHANGE

ANURAG VERMA
ARPITA DAS
DIVINA RAGHAV
NEHA SINGH
RISHI LAKHANPAL
PRADNYA MAZONGKAR
 INTRODUCTION
 WHAT IS FOREIGN EXCHANGE AND FOREIGN
EXCHANGE MARKET?
 IMPORTANCE OF FOREIGN TRADE
 MAJOR PLAYERS
 FOREX RATES
 DETERMINANTS OF FOREX RATES
 FOREX RISK AND HEDGING
 FOREX LAWS-FERA AND FEMA
 RBI

AUTHORISED
AUTHORISD DEALERS
DEALERS

CORPORATE
CUTOMERS
 FOREX MARKETS

AN OVER-THE-COUNTER MARKET WHERE BUYERS

ANS SELLERS CONDUCT FOREX TRANSACTIONS.
 PARTICIPANTS IN THE FOREX MARKET

• ARBITRAGEURS
• TRADERS
• HEDGERS
• SPECULATORS
 FOREX RATES

IT IS THE PRICE OF ONE CURRENCY QUOTED IN

TERMS OF ANOTHER CURRENCY.
DIRECT QUOTES
Eg-

INDIRECT QUOTES
Eg-
CROSS EXCHANGE RATES
SPOT EXCHANGE RATES
FORWARD EXCHANGE RATES
1. FORWARD PREMIUM
2. FORWARD DISCOUNT

FORWARD RATE – SPOT RATE X 12 X 100

SPOT RATE N

WHERE ‘N’ IS No. OF MONTHS OF FORWARD CONTRACT.

VARIABLES INFLUENCING FOREX RATES

• INFLATION
• INTEREST RATES
• CURRENT-ACCOUNT/TRADE
BALANCE
• PUBLIC DEBT
• POLITICAL AND ECONOMIC
FACTORS
 FOREX RISKS
IT IS THE RISK THE DOMESTIC CURRENCY VALUE
OF CASH FLOWS, DENOMINATED IN FOREIGN
CURRENCY, MAY CHANGE BECAUSE OF THE
VARIATION IN THE FOREX RATES
TYPES OF RISKS
TRANSACTION EXPOSURE
ECONOMIC EXPOSURE
TRANSLATION EXPOSURE
HEDGING FOREX RISKS

• FORWARD CONTRACT
• FOREIGN CURRENCY OPTION
LAWS GOVERNING FOREX TRADE

• FERA
• FEMA