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It also refers to the stock of foreign currencies and other foreign assets. The foreign exchange management ACT 1999 defines Foreign exchange means foreign currency and includes (a) Deposits credits and balances payable in any foreign currency. (b) Draft travelers cheques, letter or credit or bills of exchange expressed or drawn in Indian currency but payable in any foreign currency. (c) Drafts travelers cheques, letter of credit or bills of exchange drawn by banks, institution or persons outside India, but payable in Indian currency
Participants by Market 1. Spot Market a. commercial banks b. brokers c. customers of commercial and central banks
Forward Market: Forward Market for foreign exchange is that market which handles such transaction of foreign exchange as are meant for future delivery.
Principles Characteristics: It only caters to forward transaction. It determines forward exchange rate at which forward transaction are to be honored.
rate risk.
b.
= F-S x 12 x 100 S n
where F = the forward rate of exchange S = the spot rate of exchange n = the number of months in the forward contract
2.
Exchange Rate
Fixed
Exchange Rate System Fixed rates provide greater certainty for exporters and importers. Flexible Exchange Rate System Flexible exchange rate or floating exchange rates change freely and are determined by trading in the forex market.
Its huge trading volume representing the largest asset class in the world leading to high liquidity. Its geographical dispersion; Its continuous operation: 24 hours a day except weekends, i.e., trading from 20:15 GMT on Sunday until 22:00 GMT Friday. The use of leverage to enhance profit and loss margins and with respect to account size.
based exchange rate will change whenever the values of either of the two component currencies change. The higher a country's interest rates, the greater will be the demand for that currency.
Central banks participate in the foreign exchange market to align currencies to their economic needs. Commercial companies . Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rate. Central bank National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies.
Institutional Framework Foreign Exchange Regulation Act (FERA), 1973 was replaced by the market friendly Foreign Exchange Management Act (FEMA), 1999. Money and Securities Markets set up by the Reserve Bank in 1999 was expanded in 2004 to include foreign exchange markets
PLAN YOUR TRADE AND TRADE YOUR PLAN. THE TREND IS YOUR FRIEND. FOCUS ON CAPITAL PRESERVATION. KNOW WHEN TO CUT LOSS. TAKE PROFIT WHEN THE TRADE IS GOOD BE EMOTIONLESS. NOT TRADE BASED ON A TIP FROM A FRIEND OR BROKER.