consists of forex

8/9/2019 Consists of Forex

1/9

F

O

R

EX

PRESENTED

PRESENTED


2/9

CONSISTS OF:

P ANKAJ KUMAR

A RNAB SAHA

S OUROTTAM BAKSHI GUPTA

S UMAN SWAMI

A NIRWAN CHANDRA DUTTA


3/9

CONTENTS:

AN INTRODUCTION TO FOREX:

CHARACTERISTICS OF FOREX

MARKET:

FUNCTIONS OF FOREX MARKET:

UNDERSTANDING FOREX

QUOTES:

FOREX MARKET IN INDIA:

CONCLUSION:


4/9

AN INTRODUCTION TO FOREX:

Forex" stands for foreign exchange; it's also known as FX. In a

forex trade, you buy one currency while simultaneously selling

another - that is, you're exchanging the sold currency for the

one you're buying. The foreign exchange market is an over-the-

counter market.

The foreign exchange market was originated in year 1973. Prior

to First World War the foreign exchange markets were stable.

After World War I, the Foreign exchange markets increased ten-

fold with speculative activity. The removal of the gold standard

in 1931 created a serious problem in foreign exchange market

activity. From 1931 till 1973, the foreign exchange market

underwent many changes.

CHARACTERISTICS OF FOREX

MARKET:

1. Liquidity: The market is highly liquid with money on the table

round the clock (24/7/365) and your profiting from the market

then depends on your scheming ability.

With average daily turnover of US$3.2 trillion, forex is the most

traded market in the world.A true 24*7 market from Sunday 5

PM ET to Friday 5 PM ET, forex trading begins in Sydney, andmoves around the globe as the business day begins, first to

Tokyo, London, and New York.Unlike other financial markets,

investors can respond immediately to currency fluctuations,

whenever they occur - day or night.

2. Tradable: Although, many currencies inter-play in the

market, but there few tradable where the big dog hits their bigtarget. In fact, there are four (4) dominant currency pairs and

you need to specialise in one.


5/9

3. Equality: There is an equal playing field. That is the profit

potentials in the market is equal for all players irrespective of

the market situation whether bullish or bearish.

4. Manipulation: This is the only market known to man that is

not subject to price manipulation. So, there is no entities thatcan adjust the market price to their favour.

5. TA: In this market, pure Technical Analysis work best

compare to other market analyses or indicators.

6. Investment: You need a less capital or cash to start-up this

business in comparison with other investment channels andtheir return on investment.

7. Leverage: Here, you have opportunity to trade with greater

leverage as oppose to other markets. The minimum leverage is

100:1 and you can trade with greater leverage provided you

know how to take care of the back sword (adverse effect).

FUNCTIONS OF FOREX MARKET:

It primarily performs 3 important functions:

I. Transfer Function: It basically performs the transfer

purchasing power between different countries or among

different countries.

II. Credit Function: It provides credit channels for foreign

trade.

III. Hedging Function: It provides a Hedge or Safety against the

risks involved in foreign exchange transactions.

UNDERSTANDING FOREX QUOTES:


6/9

Reading a foreign exchange quote is simple if you remember

two things:

1. The first currency listed is the base currency

2. The value of the base currency is always 1.

As the centerpiece of the forex market, the US dollar is usually

considered the base currency for quotes. When the base

currency is USD, think of the quote as telling you what a US

dollar is worth in that other currency.

When USD is the base currency and the quote goes up, thatmeans USD has strengthened in value and the other currency

has weakened. Rising quotes mean a US dollar can now buy

more of the other currency than before.

RECKONING OF PROFIT AND LOSS IN FOREX:

For ease of use, most online trading platforms automatically

calculate the P&L of a traders' open positions. However, it isuseful to understand how this calculation is formulated:

To illustrate an FX trade, consider the following two

examples.

Let's say that the current bid/ask for EUR/USD is 1.4616/19,

meaning you can buy 1 euro for 1.4619 or sell 1 euro for1.4616.

Suppose you decide that the Euro is undervalued against the US

dollar. To execute this strategy, you would buy Euros

(simultaneously selling dollars), and then wait for the exchange

rate to rise.

So you make the trade: to buy 100,000 Euros you pay 146,190

dollars (100,000 x 1.4619). Remember, at 1% margin, your


7/9

initial margin deposit would be approximately $1,461 for this

trade.

As you expected, Euro strengthens to 1.4623/26. Now, to

realize your profits, you sell 100,000 Euros at the current rate of

1.4623, and receive $146,230

You bought 100k Euros at 1.4619, paying $146,190. Then you

sold 100k Euros at 1.4623, receiving $146,230. That's a

difference of 4 pips, or in dollar terms ($146,190 - 146,230 =

$40).

Total profit = US $40.

Now in the example, let's say that we once again buy EUR/USD

when trading at 1.4616/19. You buy 100,000 Euros you pay

146,190 dollars (100,000 x 1.4619).

However, Euro weakens to 1.4611/14. Now, to minimize your

loses to sell 100,000 Euros at 1.4611 and receive $146,110.

You bought 100k Euros at 1.4619, paying $146,190. You sold

100k Euros at 1.4611, receiving $146,110. That's a difference of

8 pips, or in dollar terms ($146,190 - $146,110 = $80)

Total loss = US $80.

EXCEPTIONS TO FOREX MARKET:

The three exceptions to this rule are The British pound

(GBP), the Australian dollar (AUD) and the Euro (EUR).

For these pairs, where USD is not the base currency, a rising

quote means the US dollar is weakening and buys less of the

other currency than before.


8/9

In other words, if a currency quote goes higher, the base

currency is getting stronger. A lower quote means the base

currency is weakening.

FOREX MARKET IN INDIA:

Foreign Exchange Market in India works under the central

government in India and executes wide powers to control

transactions in foreign exchange.

The Foreign Exchange Management Act, 1999 or FEMA regulates

the whole foreign exchange market in India. Before this act was

introduced, the foreign exchange market in India was regulatedby the reserve bank of India through the Exchange Control

Department, by the FERA or Foreign Exchange Regulation Act,

1947. After independence, FERA was introduced as a temporary

measure to regulate the inflow of the foreign capital. But with

the economic and industrial development, the need for

conservation of foreign currency was urgently felt and on the

recommendation of the Public Accounts Committee, the Indian

government passed the Foreign Exchange Regulation Act, 1973

and gradually, this act became famous as FEMA.

India among Most Matured Forex Markets

Russia, India and South Africa were the most mature forex

markets out of the 14 emerging markets.This has been found by

Indias premier forex firm Mecklai Financial which has developedmarket maturity index (MMI) using data from the last (2007)

BIS survey of central banks. China has been placed at the last

place.

Seven Asian emerging market currencies like China, India,

Indonesia, Malaysia, South Korea, Taiwan and Thailand and

seven other emerging market currencies like Brazil, Hungary,

Mexico, Poland, Russia, South Africa and Turkey were selected,

for developing MMI out of the BIS data compiled in 2007.


9/9

While Russia and South Africa remained in the top five using

this measure, India performed quite badly in 2007, ranking only

7th and quite far behind the leaders, the study said.

CONCLUSION:

I. FOREX is a multi-functional commercial interface where real

business is executed through internet and performs several

vital functions, which allows international business to be a

reality.

II. If FOREX trade had not been in existence, then transfer

purchasing power between different nations would not have

taken place.

III. FOREX operations flourishing in India made possible F.D.I.

entrants, due to which job outsourcing came in existence.

Recognition of India as a potential International Market

became possible.

Ergo, FOREX is identified as the FACE BOOK of

international market and trading.

consists of forex

Documents