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FOREIGN EXCHANGE MARKET

By Gurudeep MBA- 1st year Section B

What is on the track ?


Introduction on Forex Market Functions of Forex Market Trading i.e Participants Rate Determination Currency convertabily

Who am I ?
Exchange A < --- > B Foreign Exchange Market
Exchange Rate Foreign exchange risk

The need of such market arises because of


Tourism Buying and Selling Goods Internationally Invest across international boundaries

Functions of Forex Market


3 main functions are
to transfer the purchasing power between the countries. Converting currencies. Reducing Forex Risk.

Trading Participants in FEM


All Scheduled Commercial Banks (Authorized Dealers only). Reserve Bank of India (RBI). Corporate Treasuries. Public Sector/Government. Inter Bank Brokerage Houses. Resident Indians Non Residents Exchange Companies Money Changers

Determination of Exchange Rate


It is determined by the equilibrating interaction of buyers and sellers of currencies in the FOREX market: demand and supply determine exchange rates.
Demand for a currency for making payments for foreign trade and capital flows. Supply of a currency, during foreign trade.

Exchange Rate Equilibrium


D Value of Rupees e S

D S

Quantity of Rupees

ERE can be determined by 2 methods


SS for FE arises because
Country exports goods and services to other countries Payment made by other countries Inflows.

DD for FE arises because


Imports and goods and services Payment of one government to another for settlement of transactions. Outflows.

Currency Convertibility
Companies receiving payment in foreign currencies need to convert these payments to their home currency. Companies paying foreign businesses for goods or services Companies investing spare cash for short terms in money market accounts Companies taking advantage of changing exchange rates

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