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F O R E I G N
E X C H A N G E
M A R K E T By Gurudeep
MBA- 1st yearSection B
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What is on the track ?
• Introduction on Forex Market•Functions of Forex Market•Trading i.e Participants •Rate Determination•Currency convertabily
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Who am I ?
•Exchange A < --- > B
• Foreign Exchange Market
•Exchange Rate
•Foreign exchange risk
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The need of such market arises because of
• Tourism• Buying and Selling Goods Internationally• Invest across international boundaries
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Functions of Forex Market
• 3 main functions are – to transfer the purchasing power between the
countries.– Converting currencies.– Reducing Forex Risk.
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Trading – Participants in FEM
•All Scheduled Commercial Banks (Authorized Dealers only).•Reserve Bank of India (RBI).•Corporate Treasuries.•Public Sector/Government.•Inter Bank Brokerage Houses.•Resident Indians•Non Residents•Exchange Companies•Money Changers
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Determination of Exchange Rate
• It is determined by the equilibrating interaction of buyers and sellers of currencies in the FOREX market: demand and supply determine exchange rates.– Demand for a currency for making payments for
foreign trade and capital flows.– Supply of a currency, during foreign trade.
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Exchange Rate Equilibrium
e
D
DS
S
Quantity of Rupees
Value of Rupees
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ERE can be determined by 2 methods
• SS for FE arises because – Country exports goods and services to other countries– Payment made by other countries– Inflows.
• DD for FE arises because – Imports and goods and services– Payment of one government to another for
settlement of transactions.– Outflows.
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Currency Convertibility
• Companies receiving payment in foreign currencies need to convert these payments to their home currency.
• Companies paying foreign businesses for goods or services
• Companies investing spare cash for short terms in money market accounts
• Companies taking advantage of changing exchange rates
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