Foreign Exchange Market

Presented By
NAGESH KUMAR L
 Foreign Exchange

• A foreign exchange transaction is an agreement between a

buyer and a seller that a given amount of one currency is to be
delivered at a specified rate for some other currency.
• The foreign exchange market (forex, FX, or currency market) is
a form of exchange for the global decentralized trading of
international currencies.
 Why Foreign Exchange

Import &
Export

Tourism,
Education, Forex Inter bank
etc Transaction Settlement

Investment
Avenues
Abroad
 Features
Largest financial market in the
world with average daily
turnover of approximately $5
trillion

The forex market is greater

Dominated by large
than the stock market. It is 75
Multinational banks, Central
times greater than the
banks & Currency Brokers
combined volumes at New
York Stock Exchange

Round the clock market

starting from Sydney, Tokyo,
Honk Kong, Singapore,
Bahrain, London, New York.
Almost open 24hours x 5 days
 Functions of FX Market

– The purpose of FX market is to facilitate trade and

investment.
– obtain or provide credit for international trade
transactions.
– minimize exposure to the risks of exchange rate
changes.

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 Exchange rate

– The price of a nation’s currency in terms of another

currency.
– An exchange rate thus has two components, the
domestic currency and a foreign currency.
– For example our domestic currency is the Indian
Rupees(INR) and the Foreign Currency can be United
States Dollars (USD) or Euros (EUR) just to name a
few.

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 Currency Pairs
Base currency
The first currency quoted in a currency pair on forex. It is sometimes
referred to as the "primary currency ".

Quoted currency
It's the second currency quoted in a currency pair. It is sometimes
referred to as the "secondary currency" or "counter currency".

Eg.
USD /
INR
Base Currency
Quoted Currency
1 USD = 75.00 INR

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 Direct quote and Indirect quote

Direct Quote

• A given number of units of local currency per unit of foreign

currency is quoted. They are designated as direct/certain rates because
the rupee cost of single foreign currency unit can be obtained directly.
Direct quotation is also called home currency quotation.

Eg.
1 USD = 75 INR

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 Direct quote and Indirect quote
Indirect Quote

• A given number of units of foreign currency per unit of local

currency is quoted. Indirect quotation is also called foreign
currency quotation

Eg.
1 INR = 0.013 USD

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 Bid and Ask
The Dealer’s quote of Bid and Ask is from the Dealer’s
perspective.
Bid = Buy
Ask = Sell

Eg.
USD/INR = 64.50-64.55

• If the Bid rate for USD is 64.50 it means that the bank is ready
to buy 1$ for 64.50
• If the ask rate is for USD is 64.55, it means that the bank is
(asking if someone will buy) selling 1$ for 64.55

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 Spreads
• Spreads involve taking advantage of the price difference
between two different contracts of the same commodity.
• Spreading is considered to be one of the most conservative
forms of trading in the futures market, because it is much
safer than the trading of long / short futures contracts
• ASK MINUS BID = SPREAD
• Eg. 64-65
• SPREAD = 64 - 65 = 1
 Cross Rates
• USD is the most widely traded currency
• Any quote not against the USD is a “Cross Quote”
• This helps in reduction of no. of quotes in the market, as
exchange rate between two currencies can be determined
through their quotes against the USD.
Configurations need to be done for
forex in T24
 Forex Build Sequence
Below is the list of files that are required for Forex main set up.
1. ACCOUNT.CLASS *
2. ACCOUNT.PARAMETER
3. FX.ACTIVITY*
4. FX.DEAL.METHOD*
5. FX.PARAMETERS*
6. FX.POS.TYPE*
7. FX.REVAL.TYPE*
8. NETTING.PARAMETERS
9. REVALUATION.PARAMETER* ACCOUNT.CLASS ( Dependency)
10. FX.TEXT*
 Continue..

11. FX.TRANSACTION.TYPE* FX.REVAL.TYPE & FX.ACTIVITY .

(Dependencies)
12. BROKER
13. FX.COMM.GROUP
14. CONDITION.PRIORITY
15. FX.GEN.CONDITION
16. FX.GROUP.CONDITION
 Forex Parameter Tables

1. FX.PARAMETERS
2. FX.TRANSACTION.TYPE
3. FX.REVAL.TYPE
4. DEALER.DESK
5. BROKER
6. FORWARD.RATES
Spot Transaction in T24
 Transactions
• Spot
– A spot exchange rate is the current price level in the
market to directly exchange one currency for another, for
delivery on the earliest possible value date.
– The foreign spot exchange  can be very volatile.
– Immediate delivery is the basis.
– Standard settlement is T+2 days.
– USD-CAD is exception settles on T+1 day.
 Continue..
• Spot

Settlement date / Value date

• Trade date
• Trade date + 1
• Trade date + 2

Type Description
Ready or cash The transaction to b e settled on the s a m e day
To m The delivery of foreign exchan ge to b e m a d e on
the day next (tomorrow) to the date of transaction.
Spot Delivery of foreign exch ange would take place on the
2n d working day from the trade date.
Navigate to : Front Office -> Forex Trader -> Forex Deals -> Capture
Forex Spot Deal
Spot Trade Input Transaction
Navigate to : Back Office -> Forex -> Auth/Rev/Confirm forex deals
-> Authorise/Confirm Forex Deals
Unauthorised Forex Transaction
Authorisation of Forex Transaction

After Authorisation it should be Confirmed by the Counterparty

Unconfirmed Counterparty Forex Deal
Forex Transaction confirmed by Counterparty
Spot Transaction by Broker
 Broker Deals
• A BR or Broker deal is a transaction where trading has
been carried out through a broker and the counterparty
is not known.
• Hence broker and not counterparty details to be
specified.
• However to authorise the contract, the user will need to
erase 'BR' from this field and enter those contracts
counterparty details.
• BR deals cannot be authorised.
Spot Broker Trade Input Transaction
Spot Broker Trade Unauthorised Transaction
No Authorisation for Broker Deals
Forward Transaction in T24
 Transactions
• Forward
– Contract of exchange between two parties for a future date
– Currency forwards are OTC contracts traded in forex
markets that lock in an exchange rate for a currency pair.
– Any transaction settling more than T+2 days
– Currency forwards are over-the-counter (OTC) instruments,
as they do not trade on a centralized exchange.
Forward Trade Input Transaction
Unauthorised Forward Trade
Authorised Forex trade
Unconfirmed Counterparty trade
Confirmed by Counterparty
Swap Transaction in T24
 Swaps

• An FX Swap has two legs and is a combination of a spot and

Forward or a forward and forward deal.
• The first leg could be spot and second leg a forward or first and
second legs both are forward legs.
 Swaps
A swap is the exchange of one set of cash flows for another on a
future date. In simple terms Swaps means exchange of obligation in two
different currencies.

Company A Company B

Agrees to pay $1000 over

Indian Company having next one year US Company having
operations in USA operations in India

Agrees to pay 64000 Rs over

next one year

Prevalent Exchange
Obligation of Rs 62000
Obligation of $1000 over Rate 1USD= 64 Rs over next one year
next one year

Both parties having similar obligation but susceptible to exchange rate risk. These two parties will
eliminate the risk by entering into a swap
First leg of spot-forward swap
Second leg of spot-forward Swap