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  • Foreign Exchange Market

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    Amol Shelar
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    The foreign exchange market allows currencies to be traded globally, 24 hours a day. Participants include individuals, companies, banks, governments, and other organizations. Banks act as dealers while non-bank entities and speculators seek to profit from currency movements or hedge currency risk. Exchange occurs in spot, forward, and derivatives markets. The spot market enables immediate currency delivery while the forward market involves contracts for future delivery. Currency futures and options make up the derivatives market.

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    The foreign exchange market allows currencies to be traded globally, 24 hours a day. Participants include individuals, companies, banks, governments, and other organizations. Banks act as dealers while non-bank entities and speculators seek to profit from currency movements or hedge currency risk. Exchange occurs in spot, forward, and derivatives markets. The spot market enables immediate currency delivery while the forward market involves contracts for future delivery. Currency futures and options make up the derivatives market.

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    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    21 views8 pages

    Foreign Exchange Market

    Uploaded by

    Amol Shelar
    The foreign exchange market allows currencies to be traded globally, 24 hours a day. Participants include individuals, companies, banks, governments, and other organizations. Banks act as dealers while non-bank entities and speculators seek to profit from currency movements or hedge currency risk. Exchange occurs in spot, forward, and derivatives markets. The spot market enables immediate currency delivery while the forward market involves contracts for future delivery. Currency futures and options make up the derivatives market.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as ppt, pdf, or txt
    of 8

    Foreign exchange market

    4/21/2012

    Foreign exchange market - Kevin

    Features
    Market where foreign currencies are traded

    Round the clock market


    Global market

    Large volume of transactions

    4/21/2012

    Foreign exchange market - Kevin

    Participants
    Individuals: tourists, migrants Firms: importers and exporters Banks: short position, long position, square

    position Governments/ monetary authorities: market intervention International agencies: lending Two tier market:
    First tier: ultimate customer and banker Second tier: between banks
    4/21/2012 Foreign exchange market - Kevin

    Classification of participants
    Non-banking entitities: business

    transactions and hedging Banks: foreign exchange dealers Arbitrageurs: profit seeking from variations in rates in different markets Speculators: profit seeking from movements in exchange rates

    4/21/2012

    Foreign exchange market - Kevin

    Types of markets
    Spot market

    Forward market
    Derivatives markets: currency futures and

    options

    4/21/2012

    Foreign exchange market - Kevin

    Spot market
    Currencies traded for immediate delivery at rates

    prevailing at the time of transaction Actual delivery (electronic transfer) may take two working days Currency arbitrage: buying a currency at cheaper rate in one market and selling at a higher rate in another market
    Two point arbitrage Triangular (three point) arbitrage three currencies

    Currency speculation: buying and holding a

    currency for sale at a higher rate in the near future


    4/21/2012 Foreign exchange market - Kevin

    Forward market
    Contract for future delivery Hedging: Currencies are bought or sold for forward delivery Reduces foreign exchange risk Speculation: Reap profit from changes in exchange rates in future (difference between forward rates and future spot rates) Arbitrage: Reaping profit from disparity between forward differential and interest rate differential

    4/21/2012

    Foreign exchange market - Kevin

    Futures market
    It is a derivatives market Currency futures market is of recent origin (1972) Currencies can be bought and sold in the futures

    market Size and maturity of contracts are standardised Transactions made with the help of brokers through the clearing house Margin deposit and daily marking to the market Hedging: to reduce risk Futures may not provide a perfect hedge ( mismatch in size and maturity) Speculation: to reap short term profit
    4/21/2012 Foreign exchange market - Kevin

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