FOREIGN EXCHANGE

MARKET

FOREIGN EXCHANGE
MARKET

CONVERSION OF ONE CURRENCY INTO ANOTHER

PROTECTION AGAINST FOREIGN EXCHANGE RISK

FOREIGN EXCHANGE
MARKET

EXCHANGE RATE
THE RATE AT WHICH ONE CURRENCY IS EXCHANGED INTO
ANOTHER IS CALLED THE EXCHANGE RATE.

FOREIGN EXCHANGE
MARKET
CURRENCY CONVERSION
SETTLEMENT OF INTERNATIONAL TRADE AND SERVICE
LENDING, BORROWING AND INVESTMENT
SPECULATION

PROTECTION AGAINST FOREIGN EXCHANGE RISK

DERIVATIVE INSTRUMENTS
FORWARD CONTRACTS
OPTIONS

FOREIGN EXCHANGE
MARKET
EXCHANGE RATE DETERMINATION
DEMAND AND SUPPLY FOR THE CURRENCY
PURCHASING POWER PARITY
MONEY SUPPLY AND INFLATION

FOREIGN EXCHANGE
MARKET
FOREIGN EXCHANGE MARKET
- MARKET WHERE FOREIGN CURRENCIES ARE BEING
BOUGHT AND SOLD AT VARIOUS EXCHANGE RATES
&
FOREIGN MONEY MARKET
- MARKET WHERE FOREIGN CURRENCIES ARE BEING
BORROWED AND LENT AT VARIOUS INTEREST RATES

FOREIGN EXCHANGE
MARKET
SPOT EXCHANGE RATE
WHEN TWO PARTIES AGREE TO EXCHANGE CURRENCY AND
EXECUTE THE DEAL IMMEDIATELY THE TRANSACTION IS
REFERRED TO AS A SPOT EXCHANGE AND THE RATE
APPLIED IS CALLED THE SPOT EXCHANGE RATE

FOREIGN EXCHANGE
MARKET
FORWARD EXCHANGE RATE
WHEN TWO PARTIES AGREE TO EXCHANGE CURRENCY AND
EXECUTE THE DEAL AFTER A LAPSE OF TIME BUT FIX THE
EXCHANGE RATE NOW ITSELF THEN THE TRANSACTION IS
REFERRED TO AS A FORWARD TRANSACTION AND THE RATE
APPLIED IS CALLED THE FORWARD EXCHANGE RATE

FOREIGN EXCHANGE
MARKET
INTERACTION BETWEEN THE FOREIGN EXCHANGE
MARKET AND THE FOREIGN MONEY MARKET
IF THE INTEREST FOR THE CURRENCY IN
COUNTRY A IS MORE THAN THE INTEREST RATE
FOR THE CURRENCY OF THE COUNTRY B THEN
THE FORWARD EXCHANGE RATE OF THE
CURRENCY OF THE COUNTRY A WILL BE AT A
DISCOUNT IN RELATION TO THE COUNTRY B AND
THAT OF THE COUNTRY B WILL BE AT A PREMIUM
IN RELATION TO THE CURRENCY OF THE COUNTRY
A.

FOREIGN EXCHANGE
MARKET
EXAMPLE:
RATE OF INTEREST FOR INR IS 7 P.A.
RATE OF INTEREST FOR USD IS 6 P.A.
FORWARD RATE FOR USD IN RELATION TO INR WILL BE AT
A PREMIUM.
IN OTHER WORDS THE FORWARD RATE FOR INR WILL BE AT
A DISCOUNT INNRALATION TO USD

FOREIGN EXCHANGE
MARKET
FOREIGN EXCHANGE MARKET PARTICIPANTS
INTERNATIONAL BANKS
FINANCIAL INSTITUTIONS
CORPORATES
PUBLIC AT LARGE

FOREIGN EXCHANGE
MARKET
EXCHANGE RATE FORECASTING
FUNDAMENTAL ANALYSIS
RELATIVE MONEY SUPPLY
GROWTH RATES
INFLATION RATES
INTEREST RATES
BALANCE OF PAYMENT POSITION

FOREIGN EXCHANGE
MARKET
EXCHANGE RATE FORECASTING
TECHNICAL ANALYSIS
USES PRICE AND VOLUME DATA TO DETERMINE PAST
TRENDS THAT ARE EXPECTED INTO THE FUTURE
CHARTS USING CANDLE STICKS, LINES AND CURVES ARE
USED AND STATISTICAL TOOLS ARE APPLIED TO FORECAST
THE EXCHANGE RATES
MARKET GOSSIP
MARKET EXPECTATIONS AND NEWS AFFECT EXCHANGE
RATES

FOREIGN EXCHANGE
MARKET
CONVERTIBILITY OF A CURRENCY IS THE ABILITY TO
CONVERT THE CURRENCY INTO ANY OTHER CURRENCY
WITHOUT ANY GOVERNMENT RESTRICTION.

FOREIGN EXCHANGE
MARKET

WILL INDIAN RUPEE

BECOME FULLY
CONVERTIBLE?