Forex Management

Foreign Exchange Markets Downloaded from a2zmba.blogspot.com

What is FOREX Market? is an over the counter market. Through it we can convert one country’s currency into another. Forex markets are quite decentralized. Participants like market makers, brokers, corporate and individual customers are physically separated from each other.

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Forex Trading: what’s so unique about it? A Forex trader can work from home or office at his chosen hours of work first session of the trade i.e. the Asian session, (Tokyo, Hong Kong, Singapore) starts on Sunday evening at around 7.00 p.m. EST (Eastern Standard Time) the second session begins in London at 2.00 a.m. EST third and final session in New York at 7.00 a.m. EST and ends at about 5.00 p.m. EST at Los Angeles. 10/13/09

World Forex Markets They are mostly centered around organized markets like New York, Tokyo, London, Zurich, Hong Kong, Singapore etc. they daily trade hundreds of billions of dollars worth of currencies of the world. Forex market is infact, an abstract concept for there is no such single location, say like the Mumbai stock exchange. It is merely an over the counter market.

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Major Forex Currencies USD EUR GBP JPN CHF AUD CAD

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US Dollar EURO British Pound Japanese Yen Swiss Franc Australian Dollar Canadian Dollar

Foreign Exchange Markets Spot markets Forward markets Futures markets (In India, yet not permissible) Options markets Swaps markets Futures, options and swaps are called derivatives because they derive their value from the underlying exchange rates. 10/13/09

Spot Market For Example:

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Current Price is USD/INR = 42.50  If a person wants to buy $1000 US then he has to pay Rs.42,500/- to the seller.

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Forward Market For Example:  The current price for USD/CNY = 7.6650  Buy the forward of $100,000 @ 7.6500 for 3 month period.  Suppose, if CNY depreciates to 7.7500 after 3 months Then, sell it at 7.7500 and have the gain of CNY 10000 ($100000 X 0.1) 10/13/09

Future Market Just same as Forward Contract, but a regulatory, like any exchange is the intermediary in the Future contract. In India, CCI will be the regulatory for the Future Market. CCI is the Clearing Corporation of India, a RBI subsidiary. Currency Future will be permissible in India within 6 to 8 months. 10/13/09

Option Market    

Call Option: “Right to Buy” A person enters in the contract of a call option, having option of 3 month with the price of 40Rs./USD. After 3 months, if the spot price is higher than 40, say 42/USD. then also the buyer has right to buy that lot at the rate of 40Rs./USD By this way he can save 2Rs./USD.

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Option Market Put Option: “Right to Sell”  In previous example, after 3 month, if Rupee appreciates and reach the level of 38Rs./USD  Then also that person can sell that lot at the rate of 40Rs/USD  Again, gain of 2Rs/USD!!

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Swap markets Currency Swap is a foreign exchange agreement between two parties to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped. For example:  A U.S. based company needs to acquire Swiss francs and a Swiss-based company needs to acquire U.S. dollars.  These two companies could arrange to swap currencies by establishing an interest rate, an agreed upon amount and a common maturity date for the exchange. 10/13/09

Forex Market In India In India, the economic liberalization in the early nineties provided the economic rationale for the introduction of FX derivatives. India’s share in worldwide foreign exchange market turnover has grown to 0.9% this year, marking a three-fold jump from just 0.3% in 2006. 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). 10/13/09

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