INTERNATIONAL FINANCE

Assignment -1
Factors Affecting Exchange Rates

Submitted to- Submitted by-

Dr. Kapil Arora Mohd Azhar
MBA (FT)
Major-Marketing
Minor-Finance
 What is Exchange Rates
 In finance, the exchange rates between two currencies specify how much one
currency is worth in terms of the other. It is the value of a foreign nation’s currency
in terms of the home nation’s currency.

 For example an exchange rate of 91 Japanese yen (JPY, ¥) to the United States

dollar (USD, $) means that JPY 91 is worth the same as USD 1. The foreign
exchange market is one of the largest markets in the world.

 The spot exchange rate refers to the current exchange rate. The forward

exchange rate refers to an exchange rate that is quoted and traded today but for
delivery and payment on a specific future date.
 Foreign Exchange

The system of converting one nation currency into

another, and of transferring money from one country to
another.

Foreign Exchange Market

 Forex market is a place in which foreign exchange

transactions takes place.
 A market in which national currencies are bought &
sold against one another
Features of Foreign Exchange Market
The Foreign exchange market is unique because of

 trading volume results in market liquidity

 geographical dispersion
 Continuous operation: 24 hours a day except
weekends
 the variety of factors that affect exchange rates
 the use of leverage to enhance profit margins with
respect to account size.
 Participants
 Individual: tourists & migrants
 Firms: Importer and exporters
 Banks: commercial and central banks
 Government/ monetary authority
 International agencies

Example: As Indian import rises the demand for the foreign

currency increases which in result changes the exchange
rate as the value of foreign currency increases with
compared to domestic currency.
 Function of Forex Market

 Transfer of purchasing power

 Provision of credit
 Provision of hedging facilities
Determinants of Foreign Exchange
Market

 Long term factor

 Short term factor

Long Term Factor

 Balance of payment
 Strength of economy
 Interest rate
 Inflation
 Money supply
 National Income
Short Term Factor
 Central Bank intervention
 Export receipts import payment
 Foreign investment flows
 Political factors
 Speculation
 Capital movement
THANK YOU!!!!!!