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CHAPTER-I

INTRODUCTION

INTRODUCTION
F O R E I G N EX CH A N G E
(FOREX)
FOREX-The abbreviation of Foreign Exchange
What is Foreign Exchange?
Foreign Exchange is the purchase or sale of one nations currency in exchange for another nations
currency.Foreign Exchange makes possible international transactions such as imports and exports and the
movement of capital between countries.
Foreign Exchange is the money in one country for money or credit or goods or services in another
country.Foreign Exchange includes foreign currencies, foreign cheques and foreign drafts.
Foreign Exchange is the transaction of international monetary business, as between governments or
businesses of different countries.
Foreign Exchange is the negotiable bills drawn in one country to be paid in another country.
Foreign Exchange is any currency other than the local currency which is used in settling international
transactions.
Foreign Exchange is the system of trading in and converting the currency of one country into that of
another country.
Foreign Exchange is the transfer of credits to a foreign country to settle debts or accounts between
residents of the home country and those of the foreign country.

D e f i n i t i o n o f F o rei g n E x c h a n g e :
The foreign capital earned by a countrys exports.Since the currency of many less developed countries is
not accepted by international markets,it often becomes necessary to earn foreign exchange in order to buy
imports.
-Geography Dictionary
Foreign exchange exposure and risk are important concept in the study of international finance. It is the
sensitivity of the home currency value of asset, liabilities, or operating incomes to unanticitpated changes in
the exchange rates.
Exposure exists if the home currency values on an average in a particular manner. It also exists where
numerous currencies are involved.
Foreign exchange risk is the variance of the home currency value of items arising on account of unanticipated
changes in the exchange rates.
The derivative instruments like forwards, futures and options are used to hedge against the foreign exchange
risk of the Multinational companies.
The original derivatives contract of International Finance is the Forward exchange contract. Forward Foreign
exchange is a traditional and popular risk management tool to obtain protection against adverse exchange rate
movements. The exchange rate is locked in for a specific date in future, which enables the person involved in
the contract to plan for and budget the business expenses with more certainty.
Forward exchange market, has since the 1960s, played the role of linking international interest rates. Today,
however, Forward contract have to share other instruments and markets for arbitrage and for hedging. These
newer derivative instruments include Futures, Options and Swaps.

SCOPE OF THE STUDY:

To know what is foreign exchange and what are the various foreign exchange services.

To know how the transactions related to foreign exchange volatility carried out.

To have a brief knowledge about various foreign currencies and their exchange rates compare to other
nations currencies.

NEED OF THE STUDY


The world nations are increasingly becoming more interrelated global trade, and global investment. These
international result in cross country flow of world nations. Countries hold currencies of other countries and
that a market, dealing of foreign exchange results.
Foreign exchange means reserves of foreign currencies. More aptly, foreign exchange refers to claim to
foreign money balances. Foreign exchange gives resident of one country a financial claim on other country or
countries. All deposits, credits and balances payable in foreign currency and any drafts, travelers cheques,
letters of credit and bills of exchange payable in foreign currency constitute foreign exchange. Foreign
exchange market is the market where money denominated in one currency is bought and sold with money
denominated in another currency. Transactions in currencies of countries, parties to these transactions, rates at
which one currency is exchanged for other or others, ramificataion in these rates, derivatives to the currencies
and dealing in them and related aspects constitute the foreign exchange (in short, forex) market.
Foreign exchange transactions take place whenever a country imports goods and services, people of a
country undertake visits to other counties, citizens of a country remit money abroad for whatever purpose,
business units set up foreign subsidiaries and so on. In all these cases the nation concerned buys relevant and
required foreign exchange, in exchange of its currency, or draws from foreign exchange reserves built. On the
other hand, when a country exports goods and services to another country, when people of other countries visit
the country, when citizens of the country settled abroad remit money homewards, when foreign citizens, firms
and institutions invest in the country and when the country or its business community raises funds from
abroad, the countrys currency is bought by others, giving foreign exchange, in exchange. Multinational firms
operate in more than one country and their operations involve multiple foreign currencies. Their operations are
influenced by politics and the laws of the counties where they operate. Thus, they face higher degree of risk as
compared to domestic firms. A matter of great concern for the international firms is to analyze the implications
of the changes in interest rates, inflation rates and exchange rates on their decisions and minimize the foreign
exchange risk. The importance of the study is to know the features of foreign exchange and the factors creating
risk in foreign exchange transactions and the techniques used for managing that risk.

OBJECTIVES OF THE STUDY

To study and understand the foreign exchange in ICICI Limited.

To study and analyze the revenues of the company when the exchange rates fluctuate.

To analyze income statement and find out the revenues when the dollars are converted into Indian
rupees.

To study the different types of foreign exchange exposure including risk and risk management
techniques which the company is used to minimize the risk.

To present the findings and conclusions of the company in respect of foreign exchange risk
management

SOURCES OF DATA
Primary data:
The primary data information is gathered from ICICI Limited executives.
Secondary data:
The secondary data is collected from various financial books, magazines and Weizmann Forex Ltd as part of
the training class undertaken for project.

LIMITATIONS

The study is confined just to the foreign exchange risk but not the total risk.

The analysis of this study is mainly done on the income statements.

This study is limited for the year 2013-2014.

It does not take into consideration all Indian companies foreign exchange risk.

The hedging techniques are studied only which the company adopted to minimize foreign exchange
risk.

CHAPTER-II
INDUSTRY PROFILE
&
COMPANY PROFILE

FOREIGN EXCHANGE MARKET


The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized over-thecounter financial market for the trading of currencies. Financial centers around the world function as anchors
of trading between a wide range of different types of buyers and sellers around the clock, with the exception of
weekends. The foreign exchange market determines the relative values of different currencies.
Despite the announcement on December 18, 2013 of commencement of tapering by the US Fed starting from
January 2014 and the subsequent announcements about the increase in its pace, the Rupee has generally
remained stable, which indicates that the markets have broadly shrugged off QE tapering fears. The Rupee has
remained relatively stable as compared to other major EME currencies like Brazilian Real, Turkish Lira South
African Rand, Indonesian Rupiah and Russian Rouble. The daily volatility (annualised) of Rupee during the
period from January 1 to September 30, 2014 remained at 5.9 per cent as against South African Rand (11.5 per
cent), Brazilian Real (10.8 per cent), Turkish Lira (10.6 per cent), Russian Rouble (9.9 per cent) and
Indonesian Rupiah (6.9 per cent). In terms of point-to-point variation, Rupee has marginally appreciated by
about 0.5 per cent during the above period, while other currencies have witnessed depreciation, viz. Russian
Rouble (16.9 per cent depreciation), South African Rand (7.4 per cent), Turkish Lira (5.8 per cent) and
Brazilian Real (3.4 per cent).The contagion effect of sharp fall in Argentine Peso against the US dollar in the
second half of January 2014 also did not have any major impact on the Rupee. Even the recent geo political
crises in Ukraine, Iraq and Gaza did not have any significant impact on the Indian financial markets. This has
led to some analysts describing Indian Rupee as the most agile out of the fragile currencies of EMEs.
The exchange rate of Rupee has witnessed both periods of intense volatility and periods of stability since May
2013 when the Fed Chairman Bernanke first hinted at early tapering of Feds Quantitative Easing (QE)
programme. Against this backdrop, I would like to start my address by briefly touching upon the developments
in the domestic forex market, especially after Chairman Bernankes testimony, and the measures taken by the
RBI to restore orderly conditions in the market. Then I would also like to focus on the possible risks to the
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stability of the forex market going forward and how well is India placed now as compared to 2008 and 2013 to
cope with large capital outflows if they were to materialize. Finally, I will discuss some of the major issues and
concerns pertaining to the Indian forex market which are presently engaging the attention of the policy makers.
The primary purpose of the foreign exchange is to assist international trade and investment, by allowing
businesses to convert one currency to another currency. For example, it permits a US business to import
British goods and pay Pound Sterling, even though the business's income is in US dollars. It also supports
speculation, and facilitates the carry trade, in which investors borrow low-yielding currencies and lend (invest
in) high-yielding currencies, and which (it has been claimed) may lead to loss of competitiveness in some
countries.
In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of
another currency. The modern foreign exchange market began forming during the 1970s when countries
gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed
as per the Bretton Woods system.

Market size and liquidity


The foreign exchange market is the largest and most liquid financial market in the world. Traders include large
banks, central banks, currency speculators, corporations, governments, and other financial institutions. The
average daily volume in the global foreign exchange and related markets is continuously growing. Daily
turnover was reported to be over US$3.98 trillion in April 2010 by the Bank for International Settlements.
Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.85 trillion, or 36.7% of
the total, making London by far the global center for foreign exchange. In second and third places respectively,
trading in New York City accounted for 17.9%, and Tokyo accounted for 6.2%. In addition to "traditional"
turnover, $2.1 trillion was traded in derivatives.
Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are
actively traded relative to most other futures contracts.
Several other developed countries also permit the trading of FX derivative products (like currency futures and
options on currency futures) on their exchanges. All these developed countries already have fully convertible
capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of
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prevalent controls on the capital accounts. However, a few select emerging countries have already successfully
experimented with the currency futures exchanges, despite having some controls on the capital account.
FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange
market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).
Top

10

currency

traders

% of overall volume, May 2015

Rank Name
1
Deutsche Bank

Market share
17.06%

UBS AG
Barclays Capital
Citi
Royal Bank of Scotland
JPMorgan
HSBC

12.30%

Credit Suisse
Goldman Sachs
Morgan Stanley

4.44%

3
4
5
6
7
8
9
10

11.08%
8.69%
6.50%
6.35%
4.55%
3.28%
2.91%

Foreign exchange trading increased by over a third in the 12 months to April 2014 and has more than doubled
since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase
in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution
venues have made it easier for retail traders to trade in the foreign exchange market. In 2009, retail traders
constituted over 5.21% of the whole FX market volumes (see retail trading platforms).
Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is
no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London,
which according to TheCity UK estimates has increased its share of global turnover in traditional transactions
from 34.6% in April 2007 to 36.7% in April 2010. Due to London's dominance in the market, a particular
currency's quoted price is usually the London market price. For instance, when the IMF calculates the value of
its SDRs every day, they use the London market prices at noon that day.
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Market participants
Unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the inter-bank
market, which is made up of the largest commercial banks and securities dealers. Within the inter-bank market,
spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and
not known to players outside the inner circle. The difference between the bid and ask prices widens (from 0-1
pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large
numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask
price, which is referred to as a better spread. The levels of access that make up the foreign exchange market
are determined by the size of the "line" (the amount of money with which they are trading). The top-tier interbank market accounts for 53% of all transactions. After that there are usually smaller banks, followed by large
multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge
funds, and even some of the retail FX-metal market makers. According to Galati and Melvin, Pension funds,
insurance companies, mutual funds, and other institutional investors have played an increasingly important
role in financial markets in general, and in FX markets in particular, since the early 2000s. (2004) In addition,
he notes, Hedge funds have grown markedly over the 20012004 period in terms of both number and overall
size Central banks also participate in the foreign exchange market to align currencies to their economic needs.

Banks
The interbank market caters for both the majority of commercial turnover and large amounts of speculative
trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf
of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently,
foreign exchange brokers did large amounts of business, facilitating interbank trading and matching
anonymous counterparts for large fees. Today, however, much of this business has moved on to more efficient
electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in
most trading rooms, but turnover is noticeably smaller than just a few years ago.

Commercial companies
An important part of this market comes from the financial activities of companies seeking foreign exchange to
pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks
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or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows
are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies
can have an unpredictable impact when very large positions are covered due to exposures that are not widely
known by other market participants.

Central banks
National central banks play an important role in the foreign exchange markets. They try to control the money
supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They
can use their often substantial foreign exchange reserves to stabilize the market. Nevertheless, the
effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if
they make large losses, like other traders would, and there is no convincing evidence that they do make a profit
trading.

Forex Fixing
Forex fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that
central banks use the fixing time and exchange rate to evaluate behavior of their currency. Fixing exchange
rates reflects the real value of equilibrium in the forex market. Banks, dealers and online foreign exchange
traders use fixing rates as a trend indicator.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but
aggressive intervention might be used several times each year in countries with a dirty float currency regime.
Central banks do not always achieve their objectives. The combined resources of the market can easily
overwhelm any central bank. Several scenarios of this nature were seen in the 199293 ERM collapse, and in
more recent times in Southeast Asia.

Retail foreign exchange brokers


Retail traders (individuals) constitute a growing segment of this market, both in size and importance.
Currently, they participate indirectly through brokers or banks. Retail brokers, while largely controlled and
regulated in the USA by the CFTC and NFA have in the past been subjected to periodic foreign exchange
scams. To deal with the issue, the NFA and CFTC began (as of 2012) imposing stricter requirements,
particularly in relation to the amount of Net Capitalization required of its members. As a result many of the
smaller, and perhaps questionable brokers are now gone.
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There are two main types of retail FX brokers offering the opportunity for speculative currency trading:
brokers and dealers or market makers. Brokers serve as an agent of the customer in the broader FX market, by
seeking the best price in the market for a retail order and dealing on behalf of the retail customer. They charge
a commission or mark-up in addition to the price obtained in the market. Dealers or market makers, by
contrast, typically act as principal in the transaction versus the retail customer, and quote a price they are
willing to deal atthe customer has the choice whether or not to trade at that price.
In assessing the suitability of an FX trading service, the customer should consider the ramifications of whether
the service provider is acting as principal or agent. When the service provider acts as agent, the customer is
generally assured of a known cost above the best inter-dealer FX rate. When the service provider acts as
principal, no commission is paid, but the price offered may not be the best available in the marketsince the
service provider is taking the other side of the transaction, a conflict of interest may occur.

Non-bank foreign exchange companies


Non-bank foreign exchange companies offer currency exchange and international payments to private
individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do
not offer speculative trading but currency exchange with payments. I.e., there is usually a physical delivery of
currency to a bank account. Send Money Home offers an in-depth comparison into the services offered by all
the major non-bank foreign exchange companies.
It is estimated that in the UK, 14% of currency transfers/payments are made via Foreign Exchange Companies.
These companies' selling point is usually that they will offer better exchange rates or cheaper payments than
the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they
generally offer higher-value services.

Money transfer/remittance companies


Money transfer companies/remittance companies perform high-volume low-value transfers generally by
economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion
of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and
the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000
agents globally followed by UAE Exchange & Financial Services Ltd.

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Trading characteristics
There is no unified or centrally cleared market for the majority of FX trades, and there is very little crossborder regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of
interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a
single exchange rate but rather a number of different rates (prices), depending on what bank or market maker
is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by
arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is
usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called
Fxmarketspace opened in 2007 and aspired but failed to the role of a central market clearing mechanism.
The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers
as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as
the Asian trading session ends, the European session begins, followed by the North American session and then
back to the Asian session, excluding weekends.
Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of
changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing
power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect),
budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions.
Major news is released publicly, often on scheduled dates, so many people have access to the same news at the
same time. However, the large banks have an important advantage; they can see their customers' order flow.
On the spot market, according to the BIS study, the most heavily traded products were:

EURUSD: 27%

USDJPY: 13%

GBPUSD (also called cable): 12%

and the US currency was involved in 84.39% of transactions, followed by the euro (39.1%), the yen (19.0%),
and sterling (12.9%) .Volume percentages for all individual currencies should add up to 200%, as each
transaction involves two currencies.
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Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the
foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a
non-European currency US would have usually involved two trades: EURUSD and USD. The exception to this
is EURJPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has
eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as
well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the
currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased.

Determinants of FX rates
The following theories explain the fluctuations in FX rates in a floating exchange rate regime (In a fixed
exchange rate regime, FX rates are decided by its government):
(a) International parity conditions: Relative Purchasing Power Parity, interest rate parity, Domestic
Fisher effect, International Fisher effect. Though to some extent the above theories provide logical
explanation for the fluctuations in exchange rates, yet these theories falter as they are based on
challengeable assumptions [e.g., free flow of goods, services and capital] which seldom hold true in the
real world.
(b) Balance of payments model (see exchange rate): This model, however, focuses largely on tradable
goods and services, ignoring the increasing role of global capital flows. It failed to provide any
explanation for continuous appreciation of dollar during 1980s and most part of 1990s in face of
soaring US current account deficit.
(c) Asset market model (see exchange rate): views currencies as an important asset class for
constructing investment portfolios. Assets prices are influenced mostly by peoples willingness to hold
the existing quantities of assets, which in turn depends on their expectations on the future worth of
these assets. The asset market model of exchange rate determination states that the exchange rate
between two currencies represents the price that just balances the relative supplies of, and demand for,
assets denominated in those currencies.
None of the models developed so far succeed to explain FX rates levels and volatility in the longer time
frames. For shorter time frames (less than a few days) algorithm can be devised to predict prices. Large and
small institutions and professional individual traders have made consistent profits from it. It is understood
from above models that many macroeconomic factors affect the exchange rates and in the end currency prices
are a result of dual forces of demand and supply. The world's currency markets can be viewed as a huge
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melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly
shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses
(and distills) as much of what is going on in the world at any given time as foreign exchange.
Supply and demand for any given currency, and thus its value, are not influenced by any single element, but
rather by several. These elements generally fall into three categories: economic factors, political conditions
and market psychology.

Economic factors
These include: (a)economic policy, disseminated by government agencies and central banks, (b)economic
conditions, generally revealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy
(the means by which a government's central bank influences the supply and "cost" of money, which is
reflected by the level of interest rates).

Government budget deficits or surpluses: The market usually reacts negatively to widening government
budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a
country's currency.

Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods
and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and
deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example,
trade deficits may have a negative impact on a nation's currency.

Inflation levels and trends: Typically a currency will lose value if there is a high level of inflation in the
country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing
power, thus demand, for that particular currency. However, a currency may sometimes strengthen when
inflation rises because of expectations that the central bank will raise short-term interest rates to
combat rising inflation.

Economic growth and health: Reports such as GDP, employment levels, retail sales, capacity utilization
and others, detail the levels of a country's economic growth and health. Generally, the more healthy and
robust a country's economy, the better its currency will perform, and the more demand for it there will
be.

Productivity of an economy: Increasing productivity in an economy should positively influence the


value of its currency. Its effects are more prominent if the increase is in the traded sector.
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Political conditions
Internal, regional, and international political conditions and events can have a profound effect on currency
markets.
All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political
upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of
coalition governments in Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in
a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally
responsible can have the opposite effect. Also, events in one country in a region may spur positive/negative
interest in a neighboring country and, in the process, affect its currency.

Market psychology
Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:

Flights to quality: Unsettling international events can lead to a "flight to quality," with investors
seeking a "safe haven." There will be a greater demand, thus a higher price, for currencies perceived as
stronger over their relatively weaker counterparts. The U.S. dollar, Swiss franc and gold have been
traditional safe havens during times of political or economic uncertainty.

Long-term trends: Currency markets often move in visible long-term trends. Although currencies do
not have an annual growing season like physical commodities, business cycles do make themselves
felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.

"Buy the rumor, sell the fact": This market truism can apply to many currency situations. It is the
tendency for the price of a currency to reflect the impact of a particular action before it occurs and,
when the anticipated event comes to pass, react in exactly the opposite direction. This may also be
referred to as a market being "oversold" or "overbought". To buy the rumor or sell the fact can also be
an example of the cognitive bias known as anchoring, when investors focus too much on the relevance
of outside events to currency prices.

Economic numbers: While economic numbers can certainly reflect economic policy, some reports and
numbers take on a talisman-like effect: the number itself becomes important to market psychology and
may have an immediate impact on short-term market moves. "What to watch" can change over time. In
recent years, for example, money supply, employment, trade balance figures and inflation numbers
have all taken turns in the spotlight.
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Technical trading considerations: As in other markets, the accumulated price movements in a currency
pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study
price charts in order to identify such patterns.

Algorithmic trading in foreign exchange


Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common.
According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be
executed using algorithm, up from about 18% in 2005.

Financial instruments
Spot
A spot transaction is a two-day delivery transaction (except in the case of trades between the US Dollar,
Canadian Dollar, Turkish Lira, EURO and Russian Ruble, which settle the next business day), as opposed to
the futures contracts, which are usually three months. This trade represents a direct exchange between two
currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the
agreed-upon transaction.

Forward
One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction,
money does not actually change hands until some agreed upon future date. A buyer and seller agree on an
exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market
rates are then. The duration of the trade can be one day, a few days, months or years. Usually the date is
decided by both parties. Then the forward contract is negotiated and agreed upon by both parties.

Swap
The most common type of forward transaction is the currency swap. In a swap, two parties exchange
currencies for a certain length of time and agree to reverse the transaction at a later date. These are not
standardized contracts and are not traded through an exchange.

Future
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Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity
dates for example, $1000 for next November at an agreed rate. Futures are standardized and are usually
traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures
contracts are usually inclusive of any interest amounts.

Option
A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the
right but not the obligation to exchange money denominated in one currency into another currency at a preagreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market
for options of any kind in the world..

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COMPANY PROFILE
ICICI Bank is India's largest private sector bank with total assets of Rs. 6,461.29 billion (US$ 103 billion) at
March 31, 2015 and profit after tax Rs. 111.75 billion (US$ 1,788 million) for the year ended March 31, 2015.
ICICI Bank currently has a network of 4,070 Branches and 13,235 ATM's across India.

History

1955
The Industrial Credit and Investment Corporation of India Limited (ICICI) incorporated at the initiative of the
World Bank, the Government of India and representatives of Indian industry, with the objective of creating a
development financial institution for providing medium-term and long-term project financing to Indian
businesses.

Mr.A.Ramaswami

Mudaliar

elected

as

the

first

Chairman

of

ICICI

Limited.

ICICI emerges as the major source of foreign currency loans to Indian industry. Besides funding from the
World Bank and other multi-lateral agencies, ICICI was also among the first Indian companies to raise funds
from international markets.
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its
wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering
of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000,
ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and
secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in
1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The
principal objective was to create a development financial institution for providing medium-term and long-term
project financing to Indian businesses.
In the 1990s, ICICI transformed its business from a development financial institution offering only project
finance to a diversified financial services group offering a wide variety of products and services, both directly
and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian
company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE.
After consideration of various corporate structuring alternatives in the context of the emerging competitive
scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI
and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic
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alternative for both entities, and would create the optimal legal structure for the ICICI group's universal
banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access
to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the
payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank
shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate
relationships built up over five decades, entry into new business segments, higher market share in various
business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its
subsidiaries.
In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of
its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital
Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in
January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature
at Mumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's
financing and banking operations, both wholesale and retail, have been integrated in a single entity.

ICICI Group Companies


ICICI Group

ICICI Lombard General Insurance Company

http://www.icicigroupcompanies.com

http://www.icicilombard.com

ICICI Prudential Life Insurance Company

ICICI Prudential AMC & Trust

http://www.iciciprulife.com/public/default.ht

http://www.icicipruamc.com

m
ICICI Venture
ICICI Securities

http://www.iciciventure.com

http://www.icicisecurities.com

23

ICICI Direct
http://www.icicidirect.com

Disha Financial Counselling


http://www.icicifoundation.org

ICICI Foundation
http://www.icicifoundation.org
Executive Director

Board Members

...........................................

Mr. M. K. Sharma, Chairman

Mr. K. Ramkumar,

..............................................

Executive Director

Mr. Dileep Choksi

...........................................

..............................................

Mr. Rajiv Sabharwal,

Mr. Homi R. Khusrokhan

Executive Director

..............................................
Mr. M.S. Ramachandran
..............................................
Dr. Tushaar Shah
..............................................

Mr. V. K. Sharma
..............................................
Mr. V. Sridar
..............................................
Mr. Alok Tandon
Ms. Chanda Kochhar,
Managing Director & CEO
...........................................
Mr. N. S. Kannan,
24

Awards - 2015
ICICI Bank

Ms. Chanda Kochhar featured in Fortune Indias list of Most Powerful Women in
Business.

ICICI Bank won awards in the categories of Use of Technology for Fraud Prevention
and NPA Management among large banks and Evangelising Technology Adoption among
large banks at the IDRBT Banking Technology Excellence Awards 2015.

Ms. Chanda Kochhar was conferred with the 2015 Asia Game Changers Award.

ICICI Bank won the award of 'Top Borrowers in Asia - India' at 2015 Fixed Income
Research Poll in a poll conducted by FinanceAsia magazine.

ICICI Bank won Best Private Sector Bank under Global Business category at the
Dun & Bradstreet Banking Awards 2015.

Ms. Chanda Kochhar featured in the list of Time 100 Most Influential People, 2015.

Ms. Chanda Kochhar featured in Forbes Asia Magazines 2015 list of Asias 50 Power
Businesswomen and in the list of CNBC TV18s top 15 Indian Business Icons.

ICICI Bank won a total of seven awards at the National Award for Excellence in
Energy Management 2015 organised by the Confederation of Indian Industry (CII).

Ms. Chanda Kochhar ranked first in Fortunes list of Most Powerful Women in Asia
Pacific.

ICICI Bank won the Best Foreign Exchange Bank at FinanceAsias 2015 Country
Banking Achievement Awards.

Congratulations to Mr. Rakesh Jha for securing the top position in the category of
Best CFO for banks, announced by Institutional Investor, a US-based magazine. This result
was determined by a poll in which 625 sell side analysts across 16 sectors participated. The
poll is part of an initiative by the magazine to determine the 2015 All Asia Executive Team
rankings among financial institutions.

ICICI Bank has been adjudged the Best Retail Bank in India by The Asian Banker.
It has also emerged winners in the categories of Best Internet Banking Initiative and Best
Customer Risk Management Initiative awards given by The Asian Banker.

ICICI Bank has been declared as the first runner up at Outlook Money Awards 2015
in the category of Best Bank.

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ICICI Bank won an award in the BFSI Leadership Summit & Awards in the 'Best
Phone Banking for End-users category.

ICICI Bank won in six categories and was the first runner-up in one category among
Private Sector Banks at IBA Banking Technology Awards, 2015. The bank was declared
winner in the six categories of Best Technology Bank of the Year, Best use of Data, Best Risk
Management Initiatives, Best use of Technology in Training, Human Resources and eLearning initiatives, Best Financial Inclusion Initiative and Best use of Digital and Channels
Technology. ICICI Bank was the first runner-up in Best use of Technology to Enhance
Customer Experience.

Awards - 2014
ICICI Bank

Ms. Chanda Kochhar received an honorary Doctor of Laws from Carleton University,
Canada. The university conferred this award on Ms. Kochhar in recognition of her pioneering
work in the financial sector, effective leadership in a time of economic crisis and support for
engaged business practices.

Ms Chanda Kochhar featured in The Telegraph (UK) list of '11 most important
women in finance'.

ICICI Bank has been recognised as one of the 'Top Companies for Leaders' in India in
a study conducted by Aon Hewitt.

IDRBT has given awards to ICICI Bank in the categories of 'Social Media and Mobile
Banking' and' Business Intelligence Initiatives'.

ICICI Bank won the award for the Best Bank - Global Business Development (Private
Sector) in the Dun & Bradstreet - Polaris Financial Technology Banking Awards 2014.

ICICI Bank was awarded the Certificate of Recognition as one of the Top 5
Companies in Corporate Governance in the 14th ICSI (The Institute of Company Secretaries
of India) National Awards for Corporate Governance.

ICICI Bank has been honoured as The Best Service Provider - Risk Management,
India at The Asset Triple A Transaction Banking, Treasury, Trade and Risk Management
Awards 2014.

Mr Rakesh Jha has been ranked as the Best CFO in India at the 14th Annual Finance
Asia's Best Managed Companies Poll.

ICICI Bank has won The Corporate Treasurer Awards 2013 in the categories of 'Best
Cash Management Bank in India' & 'Best Trade Finance Bank in India'.

66

ICICI Bank has been awarded the 'Best Retail Bank in India', 'Best Microfinance
Business' and Best Retail Banking Branch Innovation' under the 'Excellence in Retail
Financial Services awards 2014' by The Asian Banker.

Ms Chanda Kochhar, MD & CEO, ICICI Bank, has been named among Fortune's 50
most powerful women in business for the fourth consecutive year.

Ms. Chanda Kochhar, MD and CEO received the 'Mumbai Women Of The Decade'
award by ASSOCHAM.
ICICI Bank, Indias largest private sector bank, today announced the launch of Indias only
credit card with a unique transparent design and a distinctive look. The ICICI Bank Coral
American Express Credit Card is the latest addition to the Banks exclusive Gemstone
Collection of credit cards.
Speaking at the launch, Mr. Rajiv Sabharwal, Executive Director, ICICI Bank said, "At
ICICI Bank, it is our constant endeavour to deliver innovative, powerful and distinctive value
propositions to our discerning customers. We are delighted to launch the ICICI Bank Coral
American Express Credit Card, the only card in the country with a youthful, transparent
design. Aimed at providing significant lifestyle benefits, this card re-affirms our commitment
to bring forth innovative services to our customers. We are also introducing a host of exciting
privileges including an introductory extended credit period offer and bonus reward points on
online transactions. We believe this card will be yet another compelling addition to our
Gemstone collection of credit cards."
Ms. Siew Choo Ng, Senior Vice President, Head of Global Network Partnerships, Asia,
American Express International, Inc. said, "We are delighted to have further strengthened
our long and cherished relationship with ICICI Bank with the launch of the new ICICI Bank
Coral American Express Credit Card. Designed to appeal to value seeking customers, the
Card reinforces our consistent endeavor to provide differentiated products and services to our
customers. The Card offers a wide array of exclusive privileges and features including
additional PAYBACK points on online spend and an innovative transparent design. At
American Express, we always strive to work closely with our partners to develop the most
relevant and compelling products for our valued card members."

66

Mr. Sanjay Rishi, President, South Asia, American Express, said, This launch marks a
further strengthening of the relationship between ICICI Bank and American Express. We
already partner with ICICI Bank on customer loyalty programs, insurance services, retail
banking services as well as initiatives to expand card accepting merchants. The launch of the
ICICI Bank Coral American Express Card combines the strengths and capabilities of both
organizations to offer an exciting new payment choice to customers.
The ICICI Bank Coral American Express Credit Card offers a wide range of attractive
benefits to its card members:
Extended Credit Period; a unique proposition offering card members ability to carry

over the retail purchase balances in first two billing statements by simply paying the
minimum amount due. No interest shall be charged in such cases and the total amount due
shall be payable as per the third billing statement. TnC apply, for complete details please
visit www.icicibank.com.
4 PAYBACK points per Rs.100 spent on dining, groceries and at supermarkets, 3

PAYBACK points per Rs.100 of online spends and 2 PAYBACK points per Rs.100 on other
spends

Complimentary

movie

tickets

with

'buy

one

get

one

free'

offer

on www.bookmyshow.com

Complimentary visits to Altitude lounges at Mumbai and Delhi airports

Minimum 15% discount on dining bills at leading restaurants across India with the
ICICI Bank Culinary Treats programme

No fuel surcharge on fuel transactions at HPCL fuel stations

OVERVIEW ICICI Group


ICICI Group offers a wide range of banking products and financial services to corporate and
retail customers through a variety of delivery channels and through its specialised group
companies and subsidiaries in the areas of personal banking, investment banking, life and
general insurance, venture capital and asset management. With a strong customer focus, the
ICICI Group Companies have maintained and enhanced their leadership positions in their
respective

sectors.

ICICI Bank is India's second-largest bank with total assets of Rs. 4,736.47 billion (US$ 93

66

billion) at March 31, 2012 and profit after tax Rs. 64.65 billion (US$ 1,271 million) for the
year ended March 31, 2012. The Bank has a network of 2,791 branches and 10,021 ATMs in
India, and has a presence in 19 countries, including India.
ICICI Prudential Life Insurance is a joint venture between ICICI Bank, a premier financial
powerhouse, and Prudential plc, a leading international financial services group
headquartered in the United Kingdom. ICICI Prudential Life was amongst the first private
sector insurance companies to begin operations in December 2000 after receiving approval
from Insurance Regulatory Development Authority (IRDA). ICICI Prudential Life's capital
stands at Rs. 47.91 billion (as of March 31, 2012) with ICICI Bank and Prudential plc
holding 74% and 26% stake respectively. For FY 2012, the company garnered Rs.140.22
billion of total premiums and has underwritten over 13 million policies since inception. The
company has assets held over Rs. 707.71 billion as on March 31, 2012.
ICICI Lombard General Insurance Company, is a joint venture between ICICI Bank Limited,
India's second largest bank with consolidated total assets of over USD 91 billion at March 31,
2012 and Fairfax Financial Holdings Limited, a Canada based USD 30 billion diversified
financial services company engaged in general insurance, reinsurance, insurance claims
management and investment management. ICICI Lombard GIC Ltd. is the largest private
sector general insurance company in India with a Gross Written Premium (GWP) of Rs.
5,358 crore for the year ended March 31, 2012. The company issued over 76 lakh policies
and settled over 44 lakh claims and has a claim disposal ratio of 99% (percentage of claims
settled against claims reported) as on March 31, 2012.
ICICI Securities Ltd is the largest integrated securities firm covering the needs of corporate
and retail customers through investment banking, institutional broking, retail broking and
financial product distribution businesses. Among the many awards that ICICI Securities has
won, the noteworthy awards for 2012 were: Asiamoney `Best Domestic Equity House for
2012; 'BSE IPF D&B Equity Broking Awards 2012' under two categories:- Best Equity
Broking House - Cash Segment and Largest E-Broking House; the Chief Learning Officer
Award from World HRD Congress for Innovation in Learning category. IDG India's CIO
magazine has recognized ICICI Securities as a recipient of CIO 100 award in 2009, 2010,
2011 and 2012. I-Sec won this awards 4 times in a row for which the CIO Hall of Fame
award was additionally conferred in 2012.

66

ICICI Securities Primary Dealership Limited (I-Sec PD) is the largest primary dealer in
Government Securities. It is an acknowledged leader in the Indian fixed income and money
markets, with a strong franchise across the spectrum of interest rate products and services institutional sales and trading, resource mobilisation, portfolio management services and
research. One of the first entities to be granted primary dealership license by RBI, I-Sec PD
has made pioneering contributions since inception to debt market development in India. I-Sec
PD is also credited with pioneering debt market research in India. It is one of the largest
portfolio managers in the country and amongst PDs, managing the largest AUM under
discretionary

portfolio

management.

I-Sec PDs leadership position and research expertise have been consistently recognised by
domestic and international agencies. In recognition of our performance in the Fixed Income
market, we have received the following awards:

Best Domestic Bond House in India - 2007, 2005, 2004, 2002 by Asia Money

Best Bond House - 2009, 2007, 2006, 2005, 2004, 2001 by Finance Asia

Best Domestic Bond House 2009 by The Asset Magazines annual Triple A
Country Awards

Ranked volume leader - by Greenwich Associates in 2010 Asian Fixed-Income


Investors Study. Ranked 5th in Domestic Currency Asian Credit with market share
of 4.5%, Only Domestic entity to be ranked.

Best Debt House in India 2012 by EUROMONEY

ICICI Prudential Asset Management is the third largest mutual fund with average asset under
management of Rs. 688.16 billion and a market share ( mutual fund ) of 10.34% as on March
31, 2012. The Company manages a comprehensive range of mutual fund schemes and
portfolio management services to meet the varying investment needs of its investors
through117 branches and 196 CAMS official point of transaction acceptance spread across
the

country.

ICICI Venture is one of the largest and most successful alternative asset managers in India
with funds under management of over US$ 2 billion. It has been a pioneer in the Indian
alternative asset industry since its establishment in 1988, having managed several funds

66

across various asset classes over multiple economic cycles. ICICI Venture is a wholly owned
subsidiary of ICICI Bank

GROUP PHILOSOPHY
As India transforms into a key player in the global economic arena, multiple opportunities for
the financial services sector have emerged. We, at ICICI Group, seek to partner the country's
growth and globalization through the delivery of world-class financial services across all
cross-sections of society.
From providing project and working capital finance to the buoyant manufacturing and
infrastructure sectors, meeting the foreign investment and treasury requirements of the Indian
corporate with increasing levels of international engagement, servicing the India linked needs
of the growing Indian diaspora, being a catalyst to the consumer finance story to serving the
financially under-served segments of the society, our technology empowered solutions and
distribution network have helped us touch millions of lives.

Vision:
To be the leading provider of financial services in India and a major global bank.

Mission:
We will leverage our people, technology, speed and financial capital to:

be the banker of first choice for our customers by delivering high quality, world-class
products and services.

expand the frontiers of our business globally.

play a proactive role in the full realisation of Indias potential.

maintain a healthy financial profile and diversify our earnings across businesses and
geographies.

maintain high standards of governance and ethics.

contribute positively to the various countries and markets in which we operate.

create value for our stakeholders.

Towards Sustainable Development

66

As India's fastest growing financial services conglomerate, with deep moorings in the Indian
economy for over five decades, ICICI Group of companies have endeavored to contribute to
address the challenges posed to the community in multiple ways.
1) ICICI Foundation for Inclusive Growth: ICICI Foundation for Inclusive Growth
(ICICI Foundation) was founded by the ICICI Group in early 2008 to carry forward
and build upon its legacy of promoting inclusive growth. ICICI Foundation works
within public systems and specialised grassroots organisations to support
developmental work in four identified focus areas. We are committed to investing in
long-term efforts to support inclusive growth through effective interventions.
2) Disha Counselling: Disha Financial Counselling services are free to all in areas
like

financial

education,

credit

counselling

and

debt

management.

3) Technology Finance Group: TFG's programmes are designed to assist industry


and institutions to undertake collaborative R&D and technology development
projects.
4) Read to Lead campaign: ICICI Bank has pledged to educate 1,00,000 children
through the 'Read to Lead initiative. Because education today means a better life
tomorrow.
5) Go Green. Each one for a better earth: ICICI Bank, is a responsible corporate
citizen and believes that every small 'green' step today would go a long way in
building a greener future and that each one of us can work towards a better earth.
Go Green' is an organisation wide initiative that moves beyond moving ourselves, our
processes and our customers to cost efficient automated channels to building
awareness and consciousness of our environment, our nation and our society.

66

PERSONAL BANKING
Deposits
ICICI Bank offers wide variety of Deposit Products to suit your requirements. Convenience
of networked branches/ ATMs and facility of E-channels like Internet and Mobile Banking,
Select any of our deposit products and provide your details online and our representative will
contact you.
Loans
ICICI Bank offers wide variety of Loans Products to suit your requirements. Coupled with
convenience of networked branches/ ATMs and facility of E-channels like Internet and
Mobile Banking, ICICI Bank brings banking at your doorstep. Select any of our loan product
and provide your details online and our representative will contact you for getting loans.
Cards
ICICI Bank offers a variety of cards to suit your different transactional needs. Our range
includes Credit Cards, Debit Cards and Prepaid cards. These cards offer you convenience for
your financial transactions like cash withdrawal, shopping and travel. These cards are widely
accepted both in India and abroad. Read on for details and features of each.
Wealth Management
Wealth is the result of a recognized opportunity. We understand this and we work with you to
plan and manage your financial opportunities prudently. Not just that, we also extend a host
of services so you can remain focused on immediate objectives while we take care of all your
wealth management requirements.

Products
66

Forex Buy and Sell

Travel Card
Travelers Cheques

Western Union

66

RBI Guide Lines


(updated as per Master Circular dated 01.07.2012)
* this is only a brief extract and for details kindly refer to above Master Circular and
Amendments, if any, thereto in RBI website www.rbi.org.in
Authorized Dealer Category-II Money Changers can undertake

Purchase from Residents / Non- Residents

Sales to Residents for Private Travel and Business Travel.

AD-Category II can undertake specified Non- Trade Current A/C


Transactions in addition to the above.
For limits and conditions kindly refer to the table under "Forex Limits"
Bringing in and taking out of Foreign Exchange

Foreign Exchange can be brought into India without limit;

Declaration in form CDF necessary if the Amount > USD 10,000 (FC notes + TCs)
and / or FC notes exceed USD 5000;

Taking out Foreign Exchange other than that obtained from AD/AMC prohibited;

Non- residents can take out Foreign Exchange up to the amount originally brought in;
Purchases of Foreign Currency from Public /Foreign Nationals:

Purchase from Residents / Non Residents/foreign nationals FC Notes/ Coins/ TC's


subject to submission of CDF (wherever applicable) to be taken;

Facility to avail INR against International Credit Cards by foreign tourists

Encashment Certificate to be issued in all cases of Encashments;

No limit for encashment is prescribed, if declared on the Currency Declaration Form


(CDF) on arrival to the customs authorities.

No declaration in CDF is required for Foreign Currency with aggregate value upto US
5000 or equivalent;

No declaration in CDF is required for FC + TC with aggregate value upto US 10000 or


equivalent;

For purchase of foreign currency notes and/ or Travellers' Cheques from customers for
any amount less than Rs. 50,000/-, or its equivalent, copies of identification documents not
required. However, details of the identification document to be furnished by the customer/
66
FOREIGN EXCHANGE MANAGEMENT ACT

66