❖ Meaning And Introduction of Foreign Exchange

Market (FOREX)
The term Foreign exchange implies two things:
a)foreign currency and b) exchange rate
Foreign exchange generally refers to foreign currency, eg for India, it is a dollar, euro, yen, etc…
The other part of foreign exchange is the exchange rate which is the price of one currency in
terms of the other currency.
Forex is the international market for the free trade of currencies. Traders place orders to buy
one currency with another currency.

❖ Definition of Foreign Exchange Market:

The forex is a market where the buyers and sellers are involved in the sale and purchase of
foreign currencies. A market where the currencies of different countries are brought and sold is
known as a foreign exchange market.
1. Foreign exchange trading occurs with the help of the telecommunication net between
buyers and sellers of foreign exchange that is located all over the world.
2. A single international foreign exchange market for every single currency.
3. Foreign exchange trading takes place at least in some of the world financial centres at
every moment.

❖ Economic Agents and Types of Activities on

Foreign Exchange Markets:
1. Bank clients (individuals, firms, non-banking financial
institutions):
All those groups of legal and physical persons that need foreign currency in doing their
commercial or investment business.
2. Commercial banks:
The most important group of foreign exchange market participants. They buy and sell foreign
currencies for their clients and trade for themselves.
3. Brokers:
Agents that connects dealers interested in buying and selling foreign exchange, but does not
become an active client in the transaction. They provide their client, the bank, with the
information about the exchange rates at which banks are willing to buy or sell a particular
currency.

4. Arbitragers:
 ● They want to earn a profit without taking any kind of risk (usually commercial banks).
● Try to profit from simultaneous exchange rate differences in different markets.
● Making use of the interest rate differences that exist in national financial markets of two
countries along with transactions on spot and forward foreign exchange market at the same
time (covered interest parity).

5. Hedgers and Speculators:

● Hedgers do not want to take risk while participating in the market, they want to insure
themselves against the exchange rate changes.
● Speculators think they know what the future exchange rate of a particular currency will
be, and they are willing to accept exchange rate risk with the goal of making a profit.
● Every foreign exchange market participant can behave either as a hedger or as a
speculator in the context of a particular transaction.

❖ Features of Foreign Exchange Market:

❖ Low trading Cost
❖ Trading Opportunity for 24 hours, 5 Days a week
❖ High Leverage
❖ High Transparent
❖ Accessibility of Forex Market
❖ High Liquidity