TOPICS TO BE COVERED y y y y FOREX EXCHANGE RATES MONEY TRANSFERS CURRENCY HEDGING

FOREX: Foreign Exchange Markets in India had a brief history behind it where it started in India in 1978 the government have allowed bank to make inter trade foreign exchange with themselves and then. The market consists of over ninety Authorized Dealers (mostly banks), Trading is regulated by the Foreign Exchange Dealers Association of India (FEDAI), a Self Regulatory association of dealers .Since 2001 clearing and settlement functions in the foreign exchange market are largely carried out by the Clearing Corporation of India Limited (CCIL) that handles transactions of Approximately 3.5 billion US dollars a day, about 80% of the total transactions. The growth of foreign exchange market has a tremendous outcome arrived Where the trading from 2000-01 to 2005-06, trading volume in the Foreign exchange market (including swaps, forwards and forward cancellations) has more Opportunities prevailed after 2009 in a huge market expansions created.

The foreign exchange market is unique because of o Its huge trading volume representing the largest asset class in the world leading to high liquidity o The low margins of relative profit compared with other markets of fixed income and the use of leverage to enhance profit and loss margins and with respect to account size o India is a huge growing country where the stable polices and economic conditions are prevailed in our country so new entrants could earn huge profit

PLAYERS IN INDIA Public Sector Banks 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank IDBI Bank Ltd Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank 15. Punjab National Bank 16. State Bank of Bikaner & Jaipur 17. State Bank of Hyderabad 18. State Bank of India 19. State Bank of Mysore 20. State Bank of Patiala 21. State Bank of Travancore 22. Syndicate Bank 23. UCO Bank 24. Union Bank of India 25. United Bank of India 26. Vijaya Bank

Private Sector Banks / Co-Operative Banks 1. Abhyudaya Co-op. Bank Limited 2. AXIS Bank Limited 3. The Bharat Co op Bank (Mumbai) Ltd 4. Bombay Mercantile Co-operative Bank Limited 15. The Jammu & Kashmir Bank Limited 16. The Kalupur Commercial Co-operative Bank Limited 17. Karnataka Bank Limited 18. The Karur Vysya Bank Limited 19. Kotak Mahindra Bank Limited 20. The Lakshmi Vilas Bank Limited 21. The Maharashtra State Co-operative Bank Limited 22 Punjab and Maharashtra Co-operative Bank
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5. The Catholic Syrian Bank Limited 6. City Union Bank Limited 7. The Cosmos Co-operative Bank Limited 8. Development Credit Bank Limited

9. The Dhanalakshmi Bank Limited 10. The Federal Bank Limited 11. HDFC Bank Limited 12. ICICI Bank Limited 13. IndusInd Bank Limited 14. ING Vysya Bank Limited

Limited 23 The Ratnakar Bank Limited 24. The Saraswat Co-operative Bank Limited 25. The Shamrao Vithal Co-operative Bank Limited 26. The South Indian Bank Limited 27. Tamilnad Mercantile Bank Limited 28. The Thane Janata Sahakari Bank Limited 29. YES Bank Limited

Financial Institutions / Others 1. Export-Import Bank of India 2. IFCI Ltd 3. Small Industries Development Bank of India 4. Thomas Cook (India) Limited 5. Alpari 6. Force fx Total Members (as of October 2011): 98 The $3.98 trillion break-down is as follows:
y y y y y

$1.490 trillion in spot transactions $475 billion in outright forwards $1.765 trillion in foreign exchange swaps $43 billion Currency swaps $207 billion in options and other products

SCOPE FOR NEW PLAYER

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Forex market also known as foreign exchange is a new concept for India. It is a place where various currencies are traded. Foreign exchange or forex means a market place where one currency is traded for another The major players of this market are banks, financial institution, large companies, financial brokers and individuals. In the recent years forex trading has gained tremendous popularity. These are unique by its large volume, extreme liquidity and 24 hour trading availability, The growth of electronic execution methods and the diverse selection of execution venues have lowered transaction costs, increased market liquidity, and attracted greater participation from many customer types. In particular, electronic trading via online portals has made it easier for retail traders to trade in the foreign exchange market. By 2010, retail trading is estimated to account for up to 10% of spot FX turnover, or $150 billion per day (see retail trading platforms)

MARKET POTENTIAL Indias forex market may be minuscule when compared to developed economies like the US and UK, but government efforts to ease capital movement has led to the country recording the fastest rise in its turnover growth in the segment over the last three years. Indias share in worldwide foreign exchange market turnover has grown to 0.9% this year, marking a three-fold jump from just 0.3% in 2004. This is the fastest increase in market share for any other country in the world, according to data compiled by Switzerland-based Bank for International Settlement (BIS). In comparison, worlds largest forex market the UK has recorded a much lower change, in percentage terms, in growth to 34.1% of share in 2007 from 31.3% three years ago. The US, second largest market, saw a slowdown in its share growth to 16.6% this year from 19.2% in 2004. Japan, third largest market, also saw its market share easing to 6% from 8.3% three years ago. In 2011 the Besides the highest three-fold jump in market share, India also recorded second highest growth in the daily average forex market turnover after China. ENTRY LEVEL The government and RBI are keen to promote the forex trading in India , A foreign exchange trader looks at the various factors that influence local economies and rates of exchange, then takes advantage of any misevaluations of currencies by buying and selling in different foreign exchange markets, He may spend up to 80 percent of the day on the telephone and working at his computer.
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There are huge opportunities are there for the forex trading Indian markets new entrants can apply for licencing with government and they can get directions from them to act accordingly. ENTRY STRATEGIES Entry Strategies and setting up a company ,Foreign Exchange Management Act (FEMA), A foreign company can commence operations in India by incorporating a company under the Companies Act,1956 through various structural nodes

o Joint Ventures o Wholly Owned Subsidiaries o Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, Subject to equity caps in respect of the area of activities o under the Foreign Direct Investment (FDI) policy In foreign exchange market Indian companies directly enter into market as like the other foreign companies must come out with the joint venture in order to enter into Indian trading market as like they should have an Indian company representing them as a joint venture project , as these are the norms followed by the companies.

MARKET GROWTH The opening up of the currency futures trading in India was done primarily to facilitate opening up and enriching the financial sector as well. It was happening elsewhere like in Dubai and everything was smooth, but the benefit wasn't being ploughed back into India. With the deregulation and RBI monitoring, India would be getting a slice of the large volumes that are traded in the currency markets. As financial markets in India get ramped up, the move was greeted with cheers by the operators and banks across India and abroad. But there is a flip side to it. India failed to take advantage of the growing clout of the Chinese Yuan and has made derivatives trading other than the US dollar difficult. It is a short sighted move as the Chinese Yuan is gaining more prominence these days. China has even suggested to the US to allow the Yuan its rightful place among global currencies as the greenback is losing its place. Yuan trading is being marketed aggressively by China and it would be another missed opportunity as Yuan-Rupee or the dollar-Yuan transactions are still not on.
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It's a scenario of 'better late than never' for currency futures trading in India although options trading & trades above $5 million are not allowed. As the Indian economy continues to soar, experts feel the onset and rapid globalization that is taking place would enable the currency futures trading market in India to kick off fast. TYPE OF CUSTOMERS The customers are varied in various sectors like the business sectors and individual who want to convert currencies according to their needs in various types are all take part in such a way, as like these are concerned in these nature. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. The average daily turnover in the global foreign exchange and related markets is continuously growing. the inter-bank market, which is made up of the largest commercial banks and securities dealers. In these ways these are about to be the currencies are converted from one country value to another currency value. EXCHANGE RATES: There are no unified or centrally cleared markets for the majority of FX trades, and there is very little cross-border 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. Major trading exchanges include EBS and Reuters.. The main trading centre is London, but New York, Tokyo, Hong Kong and Singapore are all important centres as well. 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
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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. Currencies are traded against one another. Each currency pair thus constitutes an individual trading product and is traditionally noted XXXYYY or XXX/YYY, where XXX and YYY are the ISO 4217 international three-letter code of the currencies involved. The first currency (XXX) is the base currency that is quoted relative to the second currency (YYY), called the counter currency (or quote currency). For instance, the quotation EURUSD (EUR/USD) 1.5465 is the price of the euro expressed in US dollars, meaning 1 euro = 1.5465 dollars. The market convention is to quote most exchange rates against the USD with the US dollar as the base currency (e.g. USDJPY, USDCAD, and USDCHF). The exceptions are the British pound (GBP), Australian dollar (AUD), the New Zealand dollar (NZD) and the euro (EUR) where the USD is the counter currency (e.g. GBPUSD, AUDUSD, NZDUSD, EURUSD). The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency correlation between XXXYYY and XXXZZZ. On the spot market, according to the 2010 Triennial Survey, the most heavily traded bilateral currency pairs were:  EURUSD: 28%  USDJPY: 14%  GBPUSD (also called cable): 9% And the US currency was involved in 84.9% of transactions, followed by the euro (39.1%), the yen (19.0%), and sterling (12.9%) (See table). Volume percentages for all individual currencies should add up to 200%, as each transaction involves two currencies. 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- centred is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. 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
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Exchange 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 fail as they are based on challengeable assumptions [e.g., free flow of goods, services and capital] which rarely true in the real situations. (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): This particular model views currencies as an important asset class for constructing investment portfolios. Assets prices are influenced mostly by people's 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) algorithms can be devised to predict prices. It is understood from the 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 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 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.
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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 sectors.

Political conditions y Internal, regional, and international political conditions and events can have a profound effect on currency markets. y 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 neighbouring 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", a type of capital flight whereby investors move their assets to a perceived "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts.

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 rumour, sell the fact": This market fact 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 rumour 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.

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.

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 Rouble, 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 agreedupon transaction. Forward contract

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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. Foreign exchange swap The most common type of forward transaction is the FX swap. In an FX 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. Currency Future 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. Foreign exchange option A foreign exchange option 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.

Speculation Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do. Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics. Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors. Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not;
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according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona. Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling, followed by an eventual, larger, collapse. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from them for having caused the unsustainable economic conditions. Risk aversion in forex Safe-haven currency

Chart showing MSCI World Index of Equities fell while the US Dollar Index rose. Risk aversion in the forex is a kind of trading behaviour exhibited by the foreign exchange market when a potentially adverse event happens which may affect market conditions. This behaviour is caused when risk averse traders liquidate their positions in risky assets and shift the funds to less risky assets due to uncertainty. In the context of the forex market, traders liquidate their positions in various currencies to take up positions in safe-haven currencies, such as the US Dollar. Sometimes, the choice of a safe haven currency is more of a choice based on prevailing sentiments rather than one of economic statistics. An example would be the Financial Crisis of 2008. The value of equities across world fell while the US Dollar strengthened. This happened despite the strong focus of the crisis in the USA. MONEY TRANSFER Money transfer is mode of transfer in which the transfer is made without any cash. It follows cashless payment system. These transfers happen through wire transfer, electronic funds transfer, places.
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paypal, money

order and so on. The wire transfer system takes place in different places and has its own name in these

Exchange Rates Exchange rate is the rate at which one currency will be exchanged for another. Exchange rate for is defined for exchange of two currencies. For example, India currency of Rs.47 will exchanged only for 1US$ in United States and an United States dollar will be valued for 47 rupees here in india. Foreign exchange market determines these exchange rates. Foreign exchange market is open to sellers and buyers of different kinds. This transfer happens for approximately 120 hours per week. It does not take place on Saturdays. The buyers buy at a rate which money dealers buy foreign currency which is known as the buying rate. The rate at which a seller sells his currency is known as selling rate. Most of these rates are to/form the local currency. Retail Exchange Market There may be many different situations in which people may need to exchange their currencies. For example, when people plan for a foreign trip there is a need for exchange of currency. Local money changer is the one who does all these. You can find him in different places including airport and hotels. They may also use ATM machine in the foreign country which would convert their local currency into foreign currency. The remaining foreign currency which he/she has when he/she returns home can be exchanged at their local banks or through a money changer. The buying rate and selling rate is not the same. There are variations in these buying and selling rates. The difference or variance here is the profit made by the money exchange organizations in order to stay in business.

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The above given is an exchange rate display in Thailand. Currency Pair Currency pair is the pricing structure and quotation of the currencies trade in the foreign exchange market. It is the number of units of one currency that can be exchanged for one unit of another currency. Base currency or domestic currency is the first currency quoted in a currency pair on forex. That is the base currency is the one whose value is higher than the other currency. This other currency is known as term currency. For example, a conversion from EUR to rupee, EUR is the base currency, rupee is the term currency and the exchange rate indicates how many Indian rupee would be paid or received for 1 Euro. In order to determine which is the base currency where both currencies are not listed , market convention is to use the base currency which gives an exchange rate greater than 1.000.In this case rounding issues are avoided along with exchange rates being quoted to more than 4 decimal places. Price quotations are quotations where a countrys home currency is quoted as the price currency. Price quotations are direct quotations. Indirect quotations or quantity quotations are those quotations where a countrys home currency is quoted as the unit currency. When we use price quotation, if the home currency is strengthening where the exchange rate number decreases. Conversely if the home currency is weakening then home currency depreciates. Exchange Rate Regime Each country determines the exchange rate regime that will apply to its currency. This is done in order to manage the value of its currency. For example the currency may be pegged or fixed, free-floating, or a hybrid. A free-floating currency allows it exchange rate to vary against other currencies. This is determined by the market forces of supply and demand. Changes in the exchange rate of these currencies almost happen at a constant rate. A pegged system is a system of fixed exchange rates with a provision for the devaluation of a currency. For example, between 1994 and 2005, the Chinese yuan renminbi was pegged to the US dollars at RMB 8.2768 to $1. China was not the only country to do this; from the end of second World war until 1967, Western European countries all maintained fixed exchange rates with the US dollar based on the Bretten wooden system. But that system had to be abandoned due to market pressures and speculations in the 1970s in favour of floating, market-based regimes. Fluctuating Exchange Rates

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The fluctuation in exchange rates happens when the value of a currency increases or decreases. These fluctuations are caused due to the demand in that currency. These fluctuations are mainly due to an increased transaction money or an increased speculative demand for money. Purchasing power of currency RER is the power of a currency in relation to another currency .RER is the Real Exchange Rate. These are based on the GDP deflator measurement of the price level in the home and foreign countries. This is set to 1 in a given base year .RER is set depending on the base year chosen for the GDP deflator of two countries. Effective exchange rate involves a weighted average of a basket of foreign countries whereas a bilateral exchange rate involves a currency pair. This can viewed as an external competitiveness of the entire country. A nominal effective exchange rate is weighted with the inverse of the asymptotic trade weights. A real effective exchange rate adjusts nominal effective exchange rate by appropriate foreign price level and deflates by the home country price level. GDP weighted effective exchange rate might be more appropriate compared to nominal effective exchange rate when we consider the global investment phenomenon. Uncovered Interest Rate Parity Uncovered interest rate parity states about the appreciation or depreciation of one currency versus the other. They might be neutralized by a change in the interest rate differential. For example, If British interest rates increase while Japanese interest rates remain unchanged then the British pounds should depreciate against the Japanese yen by an amount that prevents arbitrage. The forward exchange rate stated today has effect on the future exchange rate. They showed no proof of working after the 1990s. CURRENCY HEDGING A hedge is an investment position intended to offset potential losses that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, ETFs, insurance, forward contracts, swaps, options, many types of over-thecounter and derivative products, and futures contracts. Public futures markets were established in the 19th century to allow transparent, standardized, and efficient hedging of agricultural commodity prices; they have since expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations. Hedging a stock price A stock trader believes that the stock price of Company A will rise over the next month, due to the company's new and efficient method of producing widgets. He wants to buy Company A shares to profit from their expected price increase. But Company A is part of the highly volatile widget industry. If the
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trader simply bought the shares based on his belief that the Company A shares were under price, the trade would be a speculation. Since the trader is interested in the company, rather than the industry, he wants to hedge out the industry risk by short selling an equal value (number of shares price) of the shares of Company A's direct competitor, Company B. The first day the trader's portfolio is:
 

Long 1,000 shares of Company A at $1 each Short 500 shares of Company B at $2 each

(Notice that the trader has sold short the same value of shares) If the trader was able to short sell an asset whose price had a mathematically defined relation with Company A's stock price (for example a put option on Company A shares), the trade might be essentially riskless. In this case, the risk would be limited to the put option's premium. On the second day, a favourable news story about the widgets industry is published and the value of all widgets stock goes up. Company A, however, because it is a stronger company, increases by 10%, while Company B increases by just 5%:
 

Long 1,000 shares of Company A at $1.10 each: $100 gain Short 500 shares of Company B at $2.10 each: $50 loss

Types of hedging Hedging can be used in many different ways including forex trading. The stock example above is a "classic" sort of hedge, known in the industry as a pairs trade due to the trading on a pair of related securities. As investors became more sophisticated, along with the mathematical tools used to calculate values (known as models), the types of hedges have increased greatly.

Hedging strategies Examples of hedging include:

   

Forward exchange contract for currencies Currency future contracts Money Market Operations for currencies Forward Exchange Contract for interest
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Money Market Operations for interest Future contracts for interest

This is a list of hedging strategies, grouped by category. Financial derivatives such as call and put options y Risk reversal: Simultaneously buying a call option and selling a put option. This has the effect of simulating being long on a stock or commodity position. y Delta neutral: This is a market neutral position that allows a portfolio to maintain a positive cash flow by dynamically re-hedging to maintain a market neutral position. This is also a type of market neutral strategy

Conclusion Here these are the information about the forex trading ,exchange rate ,money transfer and currency hedging ,a clear picture about how indian markets are suitable for the new entrants and in what way they sustain their markets ,comparison with other countries their style and how those are about to be suitable for various fluctuations occurs in financial stability of the where these shows the importance of possibility options in the money transfer and currencies trading sector with varied outcomes.

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