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Meaning of Foreign Exchange Market

The term market has been interpreted in Economics as the place where both the buyers as well as the sellers meet and they buy and or sell goods. The foreign exchange market is a place where the transactions in foreign exchange are conducted. In practical world the external transaction requires the use of foreign purchasing power i.e. foreign currency. The foreign exchange market facilitates such transactions by performing number of functions. So it is the market where,   The market where the commodity traded is Currencies. Price of each currency is determined in term of other currencies.

Definitions of Foreign Exchange Market
According to Paul Einzig, "The foreign exchange market is the system in which the conversion of one national currency in to another takes place with transferring money from one country to another." According to Kindleberger, "It is place where foreign moneys are bought and sold." In simple words, the foreign exchange market is a market in which national currencies are bought and sold against one another. There are large numbers of foreign transactions such as buying goods abroad, visiting foreign country for any purpose. Corresponding nation in whose currency the transaction is to be fulfilled. The foreign exchange market provides the foreign currency against any national currency. However, it is to be understood that unlike other markets, this market is not restricted to any particular country or any geographic area. There are large numbers of dealers' instruments such as exchange bills, bank drafts, telegraphic transfers (TT), etc. There are certain other dealers such as brokers, acceptance houses as well as the central bank and treasury of the nation. PARTICIPANTS IN THE FOREIGN EXCHANGE MARKET:       All Scheduled Commercial Banks (Authorized Dealers only). Reserve Bank of India (RBI). Corporate Treasuries. Public Sector/Government. Inter Bank Brokerage Houses. Money Changers

Types of Foreign Exchange Markets: 1. Forward Market: Settlement at some future date ahead of the spot. 2. Spot: Settlement on the deal date.

the foreign exchange markets are exchange markets engaged in transferring the purchasing power between two nations and two currencies. funds are transferred from one account of a destination to another destination in the nation by mail. (B) Credit Function: Under this function the foreign exchange market provides credit to the traders such as exporters and importers. Various instruments like bank drafts. For international payments air-mail is used. $ and vice versa at some rate. these are various functions performed by the foreign exchange market. Recently started Euro-Dollar market is a leading credit market at international level.3. Instruments of Foreign Exchange Market The instruments. To perform above functions it uses the following instruments. against any changes in the exchange rate. Ready: Settlement usually in two working days. 3. In simple terms. Bills of Exchange: It is also called as foreign bill of exchange which is an unconditional order in writing addressed by one person to another. Under this function the foreign exchange market tries to protect the interest of the persons dealing in the market from any unforeseen changes in the exchange rate. The cheque is drawn on particular bank instead of a person. This can either bring gains or losses to the concerned parties. In this regard international clearing to both the direction is important to because it simplifies the conduct of international trade as well as capital movements from one country to another. This function of making credit available plays a crucial role in growth and expansion of the international trade. It is prime function of this market. exchange bills. Mail Transfer (MT): Under this.S. Foreign exchange market guards the interest of both exports as well as importers. Functions of Foreign Exchange Market (A) Transfer Function: As mentioned above. into U. This is the quickest method of transferring fund from one place to another. The exchange rates (price of one currency expressed in another currency) under free market situation can go up and down. Thus. these are various instruments / methods used for inflecting International payments. Thus. Telegraphic Transfers (TT): By this method a sum can be transferred from one place to another place in the world by cable or telex. (C) Hedging: Hedging is a specific function. It mentions the person to whom a certain sum is to be paid either on demand or on specific date. 2. 4. are used for transferring the purchasing power. Cheques and Bank Drafts: Persons dealing with foreign exchanges can use bank cheques as well as bank drafts in order to make payments. it is conversion of one currency into another such as converting Indian Rs. with the help of which the international payments are affected are: 1. . Exporters can get credit such as reshipment and postshipment credit.

"the amount of the foreign currency that may be bought for one unit of the domestic currency.02127 dollars or in other words one dollar costs Rs.47. "the cost in domestic currency of purchasing one unit of the foreign currency." It can also be defined as. It simply means the value of one Indian Rupee is 0." Suppose the exchange rate between Indian Rupee and the U.Meaning of Exchange Rate The concept of exchange rate has great significance because in case of the open economy transactions there is an existing of at least two currencies.S. Dollar is expressed as Re.47. External economic transactions need an essential symmetry between two currencies Definition of Exchange Rate Exchange Rate can be defined as. .0211227 or $ 1 = Rs. 1 = $0. Exchange rate refers to the price of one national currency expressed in terms of any other foreign currency.