Course Objective

Familiarize students with concepts

related to Forex Management
Analyze the dynamics of the international
foreign exchange markets
Understanding the mechanics,
mathematics and applications of the
various FX Products
Interpret and quote FX spot & forward
rates
Examine international market
conventions, ethics & trading terminology
used
Implement various FX risk taking
concepts and strategies
Understand how banks quote, source
and cover positions.

Topics that will be
covered
What is Forex Management
Why is it important
What is Foreign Exchange and Foreign Exchange
markets
What is forex exposure
Exchange Rate Systems, LERMS
Glossary of Foreign Exchange Risk management
Issues on Exchange Rate and Exposure Risks
Management
Types of forex exposures
Methods of translation exposure
Exposure management techniques Internal and
external
Basics of exchange Rates
Exchange Arithmetic Indian Forex market
Exchange arithmetic Merchant rates and forward
rates
Risk Management
Derivatives - Swaps, Options, Futures, Collars,
caps
Need for Foreign
Exchange
No country is self sufficient
Exchange of goods and
services not carried out on
barter basis
Every country has its own
sovereign currency
This currency is not legal
tender outside its boundaries
Hence when goods are bought
and sold by people in different
countries, currencies have to
be exchanged

What is foreign
exchange?
Section 2 of FERA 1973 states
Foreign Exchange means foreign
currency and includes
all deposits, credits and balances
payable in any foreign currency and
any drafts, travelers cheques, letters
of credit and bills of exchange,
expressed or drawn in Indian currency
but payable in any foreign currency;
any instrument payable at the option
of the drawee or holder thereof or any
other party thereof or any other party
thereto, either in Indian currency or in
foreign currency or partly in one and
partly in the other.
Thus Foreign Exchange means Foreign money and
near money instruments denominated in foreign
currency
It includes notes, cheques, bills of exchange, bank
balances, and deposits in foreign currency.
Forex Market Features
Global market
24 hour market
No geographical location
Dealers linked via telecom
network
Trust and confidentiality
Perfect market
Exporters, importers,
speculators, banks
Participants
Customers both importers and
exporters
Commercial banks buy foreign exchange
from exporters and sell it to importers and
to meet requirements of their other
customers as well as to earn profit
Central banks for
Exchange rate management
Reserve management
Exchange brokers
Overseas Foreign Exchangex markets
Speculators
Banks to make profits
Corporates MNCs and TNCs with a view to
take advantage of exchange rate movements

Participants contd.
Governments who borrow or
invest in foreign securities and
delay coverage
Individuals who buy and sell
foreign exchange for booking
short term profits. They also
buy currencies, stocks, bonds
etc.
Corporates take positions in
commodities whose prices are
expressed in foreign currency

Forex Transactions
Spot transactions
Spot Market
Quotations
Cross exchange Rates
Forward transactions
Forward Market
Premium or discount on the
forward contract
Intermarket arbitrage
Measuring changes in spot
exchange rates
Types of dealings
Merchant transactions
Buy / sell from / to Exporters / Importers
Transactions can be undertaken only on
account of genuine exposure of customers
Speculation prohibited
Inter bank Transactions
Banks deal with each other
Overseas transactions
Bank in India buys / sells foreign exchange in
the overseas market
Transactions between banks and
Reserve Bank of India
RBI is not obliged to sell forex but buys forex
offered to it by Ads
It intervenes as and when necessary
THE TRADING DAY
TIME ZONE
0900 Tokyo almost
winding up
Singapore, Hong
Kong live
1100 Middle East opens
1230 Europe opens
1700 India closing
1900 New York opening
Tokyo opening
THE CYCLE CONTINUES NON
STOP

Indian Scenario
Banks deal with each other
through Reuters Dealing
Systems etc. They are called
Authorised dealers.
The main market is in Mumbai
with markets also in Chennai,
Kolkatta, Hyderabad,
Bangalore and Cochin.
The Authorised Dealers have
also been permitted by the
Reserve Bank of India to deal
in foreign exchange markets
overseas.
Factors that have contributed
to growth of Indian Forex
Market
Global Forex market has taken quantum jump and
India market has followed suit
The daily gross turnover in the international forex
market is more than a trillion US dollars. In contrast,
the daily volume on the New York Stock Exchange
is only about US$ 20 billion, and the daily turnover
in the Indian FX market is a mere US$ 3 billion
Better communication network like telephones,
telexes, swift, Reuters / telerate systems and
other dealing systems
Rigid and tight exchange control regulations have
been relaxed
More players have been added with opening of
the banking sector to the private sector
Banks have been allowed to a small extent to
have foreign currency assets and liabilities
Forex dealings have come of age in India.
Especially with the introduction of LERMS and
freedom given to corporates to book , cancel and
rebook forward contracts.