Assignment :3

Question: How Does Forex Market Work? What Services Are Offered by
Commercial Banks to Business Firms for Foreign Currency Transactions
Like Import and Exports?
What is forex market? How does forex market work?
forex, or foreign exchange, can be explained as a network of buyers and sellers, who transfer
currency between each other at an agreed price. It is the means by which individuals, companies
and central banks convert one currency into another.
While a lot of foreign exchange is done for practical purposes, the vast majority of currency
conversion is undertaken with the aim of earning a profit. The amount of currency converted
every day can make price movements of some currencies extremely volatile. It is this volatility
that can make forex so attractive to traders, bringing about a greater chance of high profits, while
also increasing the risk.
 Foreign Exchange (forex) is a global market for exchanging national currencies with one
another.
 Foreign exchange venues comprise the largest securities market in the world by nominal
value, with trillions of dollars changing hands each day.
 The forex market is the largest financial market in the world.
 Foreign exchange trading utilizes currency pairs, priced in terms of one versus the other.
 Forwards and futures are another way to participate in the forex market.
 Forwards are customizable with the currencies exchanged after expiry.
 Futures are not customizable and are more readily used by speculators, but the positions
are often closed before expiry (to avoid settlement).
 Retail traders typically don't want to have to deliver the full amount of currency they are
trading. Instead, they want to profit on price differences in currencies over time. Because
of this, brokers rollover positions each day.
 The forex market is a network of institutions, allowing for trading 24 hours a day, five
days per week, with the exception of when all markets are closed because of a holiday.
  Retail traders can open a forex account and then buy and sell currencies. A profit or loss
results from the difference in price the currency pair was bought and sold at.
When trading currencies, they are listed in pairs, such as USD/CAD, EUR/USD, or USD/JPY.
These represent the U.S. dollar (USD) versus the Canadian dollar (CAD), the Euro (EUR) versus
the USD and the USD versus the Japanese Yen (JPY).
There are a variety of different ways that we can trade forex, but they all work the same way, by
simultaneously buying one currency while selling another. Traditionally, a lot of forex
transactions have been made via a forex broker, but with the rise of online trading we can take
advantage of forex price movements using derivatives like CFD trading (buying and selling
of contracts for difference).
Forex trading always involves selling one currency in order to buy another, which is why it is
quoted in pairs. the price of a forex pair is how much one unit of the base currency is worth in
the quote currency. This involved exchanging some of their home country's currency for another
at a bank or foreign exchange broker, and they would receive their foreign currency at the
current exchange rate offered by the bank or broker.
Forex market regulations:
Despite the enormous size of the forex market, there is very little regulation because there is no
governing body to police it 24/7. Instead, there are several national trading bodies around the
world who supervise domestic forex trading, as well as other markets, to ensure that all forex
providers adhere to certain standards. For example, in Australia the regulatory body is the
Australian Securities and Investments Commission (ASIC).
What services are offered by commercial banks to business firms for foreign
currency transactions like import and exports?
A commercial bank is a financial institution that grants loans, accepts deposits, and offers basic
financial products such as savings accounts and certificates of deposit to individuals and
businesses. It makes money primarily by providing different types of loans to customers and
charging interest. They provide foreign exchange to clients who are in the import and export
business, by buying and selling foreign currency. However, banks must get permission from the
regulatory body, mainly the central bank, before dealing with foreign exchange.
A commercial bank is a financial institution offering a variety of services to individuals,
businesses and capital markets. International trade in banking services is commonplace, but
contracts can be challenging to enforce in riskier countries. The role of bank in international
trade is to provide financing products such as letters of credit to help diminish these risks and
allow transactions to go smoothly for buyers and sellers worldwide.
Commercial banks are a fundamental part of the foreign exchange market as they not only trade
on their own behalf and for their customers, but also provide the channel through which all other
participants must trade. They are in essence the principal sellers within the Forex market.
One important thing to remember is that commercial banks do not only trade on behalf of their
customers, but also trade on their own behalf through proprietary desks, whose sole purpose is to
make a profit for the bank. It should always be remembered that commercial banks have
exceptional knowledge of the marketplace and the ability to monitor the activities of other
participants such as the central banks, investment funds and hedge funds. the commercial banks
have been at the centre of the Forex market for many years now and their role has remained
basically the same throughout this time.
Banks form a bond of trust between buying and selling transactions in international market. For
individual banks offer services like foreign exchange, traveler’s check, electronics transfer. For
businesses bank plays are ole of trusty agent by offering services like ‘Documentary Collection’
and ‘Letter of Credit’. Many commercial banks offer short as well as long term loan financing to
international businesses. Many countries have form banks backed by government funding’s to
provide funding for exporters and importers. In United States, Export-Import bank, an
independent agency of the US government, provides financial aid to facilitate export and import
of goods. Dealing in Foreign Exchange, Commercial banks help provide foreign exchange to
individuals and organizations which export or import goods from overseas. Transaction in the
foreign trade is impossible without the help of commercial bank. By providing finance and
guarantee through letter of credit accepting foreign bill and discounting and or collecting g those,
commercial banks help foreign trade immensely. A commercial bank helps in foreign trade by
financing his customers and by accepting foreign bills of exchange. The bank encourages the
documents like D/A (Documents against acceptance) and D/P (Documents against payments) in
foreign payments. Further, it transacts foreign exchange business and buys and sells foreign
currency. commercial banks need to take the permission of the central bank for dealing in foreign
exchange.