FOREIGN

EXCHANGE MARKET

INTERNATIONAL BUSINESS ENGLISH

LECTURER: LE XUAN QUYNH ANH
MEMBERS FOREIGN
EXCHANGE
01 MINH ANH MARKET

02 CAM TU

03 BAO HAN

04 THANH VY

05 DOAN TRINH

06 KIM NGAN

07 NGOC HAN

08 QUOC TINH
CONTENT
1. Introduction
2. Spot Market
3. Forward Market
4. Future Market
5. Arbitrage in the Foreign Exchange Market
6. Factors Affecting Payment Terms
7. Central Banks in the Foreign Exchange Market
8. Risk Management Strategies in Forex Trading
FOREIGN EXCHANG MARKET

DEFINITION

Foreign exchange market is the

international market in which
EUR/USD participants are able to buy,
USD/JPY sell, exchange and speculate on
GBP/USD currencies.
Currencies are always traded in
pairs, so the "value" of one of
the currencies in that pair is
relative to the value of the other.
 Demand
Supply
700 USD

500 EUROS -> ... USD

538.5 EUROS
TYPES OF
FOREIGN THE SPOT FOREX MARKET

EXCHANGE
THE FORWARD FOREX MARKET
MARKET
THE FUTURE FOREX MARKET
SPOT MARKET
 SPOT MARKET

Definition
Spot market is the most popular foreign
currency instrument globally, accounting
for 37% of total activity.
Involves bilateral contracts for immediate
exchange of currencies at an agreed
exchange rate within two business days.
Fast-paced market with high volatility and
quick profits/losses.
SPOT MARKET

Use Cases :
Major traders: commercial banks, investment
banks, hedge funds, corporate customers.
Interbank market features international deals,
reflecting global competition and advanced
communication systems.
Corporate customers mainly focus on domestic
foreign exchange activities.
 SPOT MARKET

Participants in Currency Spot Role in Currency Trading

Trading: Currency Trading:
- Commercial banks - Spot market for immediate buying and selling
of currencies.
- Brokers
- Important role in currency trading.
- Customers of commercial banks
Currency Exchange Bonds:
- Traded in pairs (e.g. EUR/USD, GBP/JPY)
with settlement in cash within two business
days.
 SPOT MARKET
Weaknesses:

Unable to provide
transactions for the
buyer or seller on
demand with future
Strengths: transaction time.

Transactions are provided for:

Exporters who have demand
for selling foreign currency at
once - Importers who have
demand for buying foreign
currency at once
FORWARD MARKET
 DEFINITION

A forward market is a marketplace

that offers financial instruments that
are priced in advance for future
delivery. It tends to be referenced as
the foreign exchange market, but it
can also apply to securities,
commodities, and interest rates.
 Flexible Forward

Closed Outright
TYPES OF Forward
FORWARD
MARKET Non-Deliverable
Forward

Long Dated Forward

 USE CASES

Speculation

FORWARD
MARKET
Hedging
 COMPARATION

Spot market Forward market

on a future date, as agreed

Settlement within two working days
upon by both parties

Time horizon lower at a future date

based on the market based on the expectations

Price determination demand and supply of the market conditions

Risk immediately higher

FUTURES MARKET
Definition
 Forward contract Future contract

Place OTC Exchange

Guarantee No Yes

Liquidity Low High

 FUTURES MARKET

Speculation

Trading Strategies

Hedging
ARBITRAGE IN THE FOREIGN
EXCHANGE MARKET

Arbitrage is the practice of taking

advantage of inconsistent exchange
rates in different markets by selling in
one market and simultaneously buying in
another.
In its simple form, arbitrage is buying a
foreign currency at a low price then
immediately selling it on a different
market for a higher price.
TYPES OF ARBITRAGE
Two-point arbitrage concerns two currencies in two
geographically separated markets or two different monetary
centers.
Three-point arbitrage is the act of exploiting an arbitrage
opportunity resulting from a pricing discrepancy among three
different currencies in three different markets or three different
monetary centers.
EXAMPLE
Consider the following market rates:
GBP/USD = 1.9809/39 in New York
USD/AUD = 1.6097/17 in Sydney
GBP/AUD = 3.1650/70 in London
 sell GBP 508,272.81
get 508,272.81 x 1.9809
= USD 1,006,837.61

New York London

sell USD 1,000,000 AUD 1,609,700

get 1,000,000 x 1.6097 buy 1,609,700/3.1670
= AUD 1,609,700 = GBP 508,272.81

Sydney

Profit: USD 1,006,837.61– USD 1,000,000 = USD 6,837.61

FACTORS AFFECTING
PAYMENT TERMS
BUSINESS RELATIONSHIP

A MAJOR FACTOR IS THE

BUYER-SELLER CONNECTION
THAT CURRENTLY EXISTS.
RISK PERCEPTION
THE CONDITIONS OF PAYMENT ARE INFLUENCED BY
THE PERCEIVED LEVEL OF RISK INVOLVED IN THE
TRANSACTION.
MARKET
COMPETITIVENESS

THE MARKET'S LEVEL OF COMPETITION

AS WELL AS INDUSTRY NORMS MAY HAVE
AN IMPACT ON TERMS OF PAYMENT.
TRANSACTION AMOUNT

THE CONDITIONS OF PAYMENT MAY BE

AFFECTED BY THE MAGNITUDE OF THE
TRANSACTION
CURRENCY FLUCTUATIONS

EXCHANGE RATE VARIATIONS CAN

HAVE AN IMPACT ON THE CONDITIONS
OF PAYMENT
 PAYMENT TERMS MAY BE IMPACTED BY
LAWS AND REGULATIONS.

REGULATORY ENVIRONMENT
 PREFERENCES FOR
PAYMENT METHODS
PREFERENCES FOR
PAYMENT METHODS BY
BUYERS AND SELLERS
HAVE AN IMPACT ON THE
CONDITIONS OF PAYMENT.
 MARKET CONDITIONS

A NUMBER OF FACTORS, INCLUDING

INTEREST RATES, INFLATION RATES,
AND GENERAL FINANCIAL STABILITY
 NEGOTIATION POWER

PAYMENT TERMS MAY BE IMPACTED BY THE

BUYER AND SELLER'S RESPECTIVE
NEGOTIATING POSITIONS
CENTRAL BANK IN THE
FOREIGN EXCHANGE
MARKET
 WHAT IS CENTRAL BANK ?
A central bank is a financial institution that is responsible for the
management of the monetary system, controlling the flow of money,
responsible for implementing the monetary policy of a country, group
of countries or territory with the goal of stabilizing currency value,
supplying money, controlling interest rates and supporting
commercial banks at risk of bankruptcy.
CENTRAL BANK IN FOREIGN EXCHANGE MARKET

increase a
The price of its currency’s value
The central bank
currency on the
of a country
exchange
decrease a
currency’s value
“key figure”
 1. INTEREST RATE POLICIES
CURRENCY APPRECIATES CURRENCY DEPRECIATES

encourage discourage
foreign capital foreign capital
inflows. inflows.
currency more currency less
attractive to attractive to
foreign investors foreign investors

RAISE INTEREST RATES LOWER INTEREST RATES

 2. FOREX RESERVES MANAGEMENT

A domestic currency A domestic currency

appreciates depreciates

BUY FOREIGN SELL

MARKET MARKET
foreign currency foreign currency
EXCHANGE
RESERVE

weaken the domestic strengthen the domestic

currency’s value. currency’s value.
3. INFLATION CONTROL BY FOREX MARKET
 4. TRADE BALANCE IMPACT

A weaker domestic currency

The exports cheaper Improve the

The imports more expensive
trade balance

Reduce trade deficits

RISK MANAGEMENT STRATEGIES IN
FOREX TRADING

Risk management strategies in

Forex trading are the techniques
and methods that traders use to
protect their capital and minimize
their losses when trading
currencies.
SOME OF THE COMMON RISK MANAGEMENT
STRATEGIES

Setting stop-loss and limit orders to

exit trades at predetermined levels
Using appropriate leverage and
margin levels to avoid excessive risk
exposure
Diversifying the trading portfolio
across different currency pairs and
time frames
 SOME OF THE COMMON RISK MANAGEMENT
STRATEGIES

Applying technical and fundamental

analysis to identify market trends and
signals
Developing a trading plan and following
it consistently
Practicing discipline and emotional
control when trading
THANK YOU