RUNNING HEAD: Forex Risk Management Products

Forex Risk Management Products

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Forex Market

1. Introduction

The forex market is a virtual network in which traders operate by buying, selling, interchanging and by

indulging in speculation of currencies, this market operates internationally. This market consists of banks,

mercantile corporations, central banks, investment management corporations, hedge funds and forex brokers

and individual investors. This international market is set in two levels; the first level being the interbank market

where the most prevalent banks in the world exchange currencies with each other for reasons like hedging,

adjustments and in service of its clients. Although there are only a number of participants at the interbank

level, the trade volume is enormous and is key in setting the exchange rates of currencies. The latter is OTC

(over the counter) market where individual investors and corporations indulge in currency trade through virtual

channels and brokers (Foreign exchange markets extracted from www.thebalance.com/)

(Source: Business Encyclopedia)

A subsequent amount of risk is associated with forex trade, which is merely the probable loss or profit

that results from a change in the exchange rates. The foreign exchange market or forex market is amongst the

largest financial markets prevailing in the world. The transactions that go through this market daily,
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accumulate to $ 5 trillion. The market thus has presented various financial institutions, banks, countries and

people looking to invest discretely, with a humongous potential to make profits. In order to lessen the chances

of financial losses, each and every investor must have some risk controlling policies and provisions. A

manifold of people are involved in the trading activities associated with foreign exchange markets, though

most of them are not in a situation that will give them the profits they require or expect. Consequently many

people lose their money. Some traders will lose all of their money, whereas others just aren’t capable of

earning the returns they some fail to get the results they anticipated (Forex risk from admiralmarkets.com)

2. Forex market in Bahrain

The forex market is an active constituent of Bahrain’s financial market, one of the main reasons being that

the Bahraini Dinar (BD) is entirely transformable to the US dollar i.e. 1 BD is equal to $ 2.66 (Bahrain foreign

exchange controls from www.export.gov ).

Forex trading is becoming more and more renowned in Bahrain, as people are getting to know about its

various uses. Exchanges and OTC’s are both available for the people of Bahrain to put forex trading into

practice. The most accomplished Forex brokers from around the globe eagerly receive traders from Bahrain,

as the market is upcoming. A number of the country’s brokerage houses dealing in forex services are

renowned internationally including XM global, Hot-forex (member of HF Markets) among others.

The National Bank of Bahrain NBB is a key constituent in the country’s forex market. It offers a variety

of services and has contributed a whole domain that caters to the various concern of and offers guidelines to

the country’s forex trading participants. The various services include;

a) It offers a reasonable mechanism for two-way pricing of the currency crosses i.e. Exchange prices of

the native currency and the other currency in demand

b) It is an avenue for trade in the GCC; gulf cooperation council; and other hard or major currencies

prevailing in the forward, spot and swap markets.

c) Offers liquidity management solutions via competitive rates for deposits and lending

d) Offers Islamic instruments for trading

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e) Offers organized transactions; a service by which profits can be earned via hedging and indulging in

other derivative markets

f) Offers daily updated currency rates

g) Margin trading; a service which can only be utilized by high end customers (deposits equaling US

$100000), allowing the utilization of capital for forex trading

h) Reasonable selling and purchase rates for the countries included in the GCC.

(Forex services and details from www.nbbonline.com)

The following chart represents the trading information for various currencies paired with the BHD;

(Source: investing.com/ bahrain/markets)

3. Islamic forex trading

Islamic forex trading is another concept prevailing in the Bahraini market. The main purpose behind the

introduction of such a concept is to let the Muslim community also participate in the forex market in a way

that does not oppose their faith. The brokers or traders associated with the Islamic way of forex trading neither

receive interest nor pay it. Thus the basic features of Islamic financing are followed and obeyed by Islamic

forex trading as well which are as follows;

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a) An idea that the risk be shared among the borrower and lender in a prespecified proportion

b) The resolution behind the idea is to endorse economic and social growth via explicit business

activities

(Islamic forex trading from www.islamic-forex.com/)

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References
 Forex risk management extracted from https://admiralmarkets.com/education/articles/forex-
basics/forex-risk-management
 Foreign exchange market extracted from https://www.thebalance.com/foreign-exchange-market-
3306088
 Bahrain foreign exchange controls extracted from https://www.export.gov/article?id=Bahrain-
foreign-exchange-controls
 Forex trading services extracted from https://www.nbbonline.com/en/personal/fx-and-
wealth/foreign-exchange/daily-foreign-exchange-counter-rates
 Bahraini forex market details extracted from https://www.investing.com/markets/bahrain
 Islamic forex trading extracted from https://www.islamic-forex.com/