term paper of sanskriti

8/8/2019 Term Paper of Sanskriti

1/18

TERM

PAPER


2/18

INDIAN COMPANIES LISTED ON

FOREIGN EXCHANGE:

IMPLICATIONS ON THECOMPANY AND ECONOMY

SUBMITTED TO:- SUBMITTED BY:-

Mr. BHAVDEEP S.KOCHAR

SANSKRITI KIRAN

ROLL NO- A03SEC- T1001

REG. NO- 11003630

BUSINESS ENVIRONMENT

INTRODUCTION:- FOREIGN EXCHANGE


3/18

The foreign exchange market (forex, FX, or currency market) is a worldwidedecentralized over-the-counterfinancial market for the trading of currencies.Financial centers around the world function as anchors of trading between a widerange of different types of buyers and sellers around the clock, with the exception ofweekends. The foreign exchange market determines the relative values of different

currencies.

The primary purpose of the foreign exchange market is to assist international tradeand investment, by allowing businesses to convert one currency to another currency.For example, it permits a US business to import British goods and pay PoundSterling, even though the business's income is in US dollars. It also supportsspeculation, and facilitates the carry trade, in which investors borrow low-yieldingcurrencies and lend (invest in) high-yielding currencies, and which (it has beenclaimed) may lead to loss of competitiveness in some countries.

In a typical foreign exchange transaction, a party purchases a quantity of one

currency by paying a quantity of another currency. The modern foreign exchangemarket began forming during the 1970s when countries gradually switched to floatingexchange rates from the previous exchange rate regime, which remainedfixed asper the Bretton Woods system.

The foreign exchange market is unique because of

its huge trading volume, leading to high liquidity; its geographical dispersion; its continuous operation: 24 hours a day except weekends, i.e. trading from

20:15 GMT on Sunday until 22:00 GMT Friday; the variety of factors that affect exchange rates; the low margins of relative profit compared with other markets of fixed income;

and the use ofleverage to enhance profit margins with respect to account size.

As such, it has been referred to as the market closest to the ideal ofperfectcompetition, notwithstanding market manipulation by central banks.[citation needed]

According to the Bank for International Settlements,[3] as of April 2010, average dailyturnover in global foreign exchange markets is estimated at $3.98 trillion, a growth ofapproximately 20% over the $3.21 trillion daily volume as of April 2007.

The $3.98 trillion break-down is as follows:

$1.490 trillion in spot transactions $475 billion in outright forwards $1.765 trillion in foreign exchange swaps $43 billion currency swaps $207 billion in options and other products Market size and liquidity
http://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Pound_Sterlinghttp://en.wikipedia.org/wiki/Pound_Sterlinghttp://en.wikipedia.org/wiki/US_dollarshttp://en.wikipedia.org/wiki/Carry_tradehttp://en.wikipedia.org/wiki/Floating_exchange_ratehttp://en.wikipedia.org/wiki/Floating_exchange_ratehttp://en.wikipedia.org/wiki/Exchange_rate_regimehttp://en.wikipedia.org/wiki/Fixed_exchange_ratehttp://en.wikipedia.org/wiki/Fixed_exchange_ratehttp://en.wikipedia.org/wiki/Bretton_Woods_systemhttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/GMThttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Leverage_(finance)http://en.wikipedia.org/wiki/Perfect_competitionhttp://en.wikipedia.org/wiki/Perfect_competitionhttp://en.wikipedia.org/wiki/Market_manipulationhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-BIS-2http://en.wikipedia.org/wiki/Foreign_exchange_spot_tradinghttp://en.wikipedia.org/wiki/Forward_contracthttp://en.wikipedia.org/wiki/Forex_swaphttp://en.wikipedia.org/wiki/Pound_Sterlinghttp://en.wikipedia.org/wiki/Pound_Sterlinghttp://en.wikipedia.org/wiki/US_dollarshttp://en.wikipedia.org/wiki/Carry_tradehttp://en.wikipedia.org/wiki/Floating_exchange_ratehttp://en.wikipedia.org/wiki/Floating_exchange_ratehttp://en.wikipedia.org/wiki/Exchange_rate_regimehttp://en.wikipedia.org/wiki/Fixed_exchange_ratehttp://en.wikipedia.org/wiki/Bretton_Woods_systemhttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/GMThttp://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Leverage_(finance)http://en.wikipedia.org/wiki/Perfect_competitionhttp://en.wikipedia.org/wiki/Perfect_competitionhttp://en.wikipedia.org/wiki/Market_manipulationhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-BIS-2http://en.wikipedia.org/wiki/Foreign_exchange_spot_tradinghttp://en.wikipedia.org/wiki/Forward_contracthttp://en.wikipedia.org/wiki/Forex_swaphttp://en.wikipedia.org/wiki/Over-the-counter_(finance)


4/18

Main foreign exchange market turnover, 19882007, measured in billions ofUSD.

The foreign exchange market is the largest and most liquid financial market in

the world. Traders include large banks, central banks, currencyspeculators,corporations, governments, and otherfinancial institutions. The average dailyvolume in the global foreign exchange and related markets is continuouslygrowing. Daily turnover was reported to be overUS$3.98 trillion in April 2010by the Bank for International Settlements.[3]

Of the $3.98 trillion daily global turnover, trading in London accounted foraround $1.85 trillion, or 36.7% of the total, making London by far the globalcenter for foreign exchange. In second and third places respectively, tradingin New York City accounted for 17.9%, and Tokyo accounted for 6.2%.[4] Inaddition to "traditional" turnover, $2.1 trillion was traded in derivatives.

Exchange-traded FX futures contracts were introduced in 1972 at the Chicago

Mercantile Exchange and are actively traded relative to most other futurescontracts. Several other developed countries also permit the trading of FX derivative

products (like currency futures and options on currency futures) on theirexchanges. All these developed countries already have fully convertiblecapital accounts. Most emerging countries do not permit FX derivativeproducts on their exchanges in view of prevalent controls on the capitalaccounts. However, a few select emerging countries (e.g., Korea, SouthAfrica, India[1]; [2]) have already successfully experimented with thecurrency futures exchanges, despite having some controls on the capitalaccount.

FX futures volume has grown rapidly in recent years, and accounts for about7% of the total foreign exchange market volume, according to The Wall Street

Journal Europe (5/5/06, p. 20).

Foreign exchange tradingincreased by 38% betweenApril 2005 and April 2006 andhas more than doubled since2001. This is largely due to thegrowing importance of foreignexchange as an asset class

and an increase in fundmanagement assets,

Top 10 currency traders [5]

% of overall volume, May 2010

Rank Name Market share

1 Deutsche Bank 18.06%

2 UBS AG 11.30%

3 Barclays Capital 11.08%

4 Citi 7.69%

5 Royal Bank of Scotland 6.50%6 JPMorgan 6.35%

7 HSBC 4.55%

8 Credit Suisse4.44%

9 Goldman Sachs 4.28%

10 Morgan Stanley 2.91%
http://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Speculatorshttp://en.wikipedia.org/wiki/Speculatorshttp://en.wikipedia.org/wiki/Governmentshttp://en.wikipedia.org/wiki/Financial_institutionshttp://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-BIS-2http://en.wikipedia.org/wiki/Londonhttp://en.wikipedia.org/wiki/New_York_Cityhttp://en.wikipedia.org/wiki/Tokyohttp://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-BIS_survey-3http://en.wikipedia.org/wiki/Derivative_securityhttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Chicago_Mercantile_Exchangehttp://en.wikipedia.org/wiki/Chicago_Mercantile_Exchangehttp://www.bseindia.com/deri/CDX/cdx_intro.htm?L=2&id=hd4&Lid=1http://www.nse-india.com/marketinfo/fxTracker/fxTracker.jsphttp://en.wikipedia.org/wiki/Wall_Street_Journalhttp://en.wikipedia.org/wiki/Wall_Street_Journalhttp://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-4http://en.wikipedia.org/wiki/Deutsche_Bankhttp://en.wikipedia.org/wiki/UBS_AGhttp://en.wikipedia.org/wiki/Barclays_Capitalhttp://en.wikipedia.org/wiki/Citihttp://en.wikipedia.org/wiki/Royal_Bank_of_Scotlandhttp://en.wikipedia.org/wiki/JPMorganhttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Credit_Suissehttp://en.wikipedia.org/wiki/Goldman_Sachshttp://en.wikipedia.org/wiki/Morgan_Stanleyhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Switzerlandhttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_Kingdomhttp://en.wikipedia.org/wiki/Switzerlandhttp://en.wikipedia.org/wiki/Germanyhttp://en.wikipedia.org/wiki/File:G_foreign_exchange_market_turnover.gifhttp://en.wikipedia.org/wiki/File:G_foreign_exchange_market_turnover.gifhttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Central_bankhttp://en.wikipedia.org/wiki/Speculatorshttp://en.wikipedia.org/wiki/Governmentshttp://en.wikipedia.org/wiki/Financial_institutionshttp://en.wikipedia.org/wiki/US$http://en.wikipedia.org/wiki/Bank_for_International_Settlementshttp://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-BIS-2http://en.wikipedia.org/wiki/Londonhttp://en.wikipedia.org/wiki/New_York_Cityhttp://en.wikipedia.org/wiki/Tokyohttp://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-BIS_survey-3http://en.wikipedia.org/wiki/Derivative_securityhttp://en.wikipedia.org/wiki/Futures_contracthttp://en.wikipedia.org/wiki/Chicago_Mercantile_Exchangehttp://en.wikipedia.org/wiki/Chicago_Mercantile_Exchangehttp://www.bseindia.com/deri/CDX/cdx_intro.htm?L=2&id=hd4&Lid=1http://www.nse-india.com/marketinfo/fxTracker/fxTracker.jsphttp://en.wikipedia.org/wiki/Wall_Street_Journalhttp://en.wikipedia.org/wiki/Wall_Street_Journalhttp://en.wikipedia.org/wiki/Wall_Street_Journalhttp://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-4http://en.wikipedia.org/wiki/Deutsche_Bankhttp://en.wikipedia.org/wiki/UBS_AGhttp://en.wikipedia.org/wiki/Barclays_Capitalhttp://en.wikipedia.org/wiki/Citihttp://en.wikipedia.org/wiki/Royal_Bank_of_Scotlandhttp://en.wikipedia.org/wiki/JPMorganhttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Credit_Suissehttp://en.wikipedia.org/wiki/Goldman_Sachshttp://en.wikipedia.org/wiki/Morgan_Stanley


5/18

particularly of hedge funds and pension funds. The diverse selection ofexecution venues have made it easier for retail traders to trade in the foreignexchange market. In 2006, retail traders constituted over 2% of the whole FXmarket volumes with an average daily trade volume of overUS$50-60 billion(see retail trading platforms).

Because foreign exchange is an OTC market where brokers/dealers negotiatedirectly with one another, there is no central exchange or clearing house. Thebiggest geographic trading centre is the UK, primarily London, whichaccording to IFSL estimates has increased its share of global turnover intraditional transactions from 31.3% in April 2004 to 34.1% in April 2007. Dueto London's dominance in the market, a particular currency's quoted price isusually the London market price. For instance, when the IMFcalculates thevalue of its SDRs every day, they use the London market prices at noon thatday.

The ten most active traders account for 77% of trading volume, according tothe 2010 Euromoney FX survey.[7] These large international banks continually

provide the market with both bid (buy) and ask (sell) prices. The bid/askspread is the difference between the price at which a bank ormarket makerwill sell ("ask", or "offer") and the price at which a market takerwill buy ("bid")from a wholesale or retail customer. The customer will buy from the market-maker at the higher "ask" price, and will sell at the lower "bid" price, thusgiving up the "spread" as the cost of completing the trade. This spread isminimal for actively traded pairs of currencies, usually 03 pips. For example,the bid/ask quote of EURUSD might be 1.2200/1.2203 on a wholesale broker.Minimum trading size for most deals is usually 100,000 units ofbasecurrency, which is a standard "lot".

These spreads might not apply to retail customers at banks, which willroutinely mark up the difference to say 1.2100/1.2300 for transfers, or say1.2000/1.2400 for banknotes or travelers' checks. Spot prices at marketmakers vary, but on EURUSD are usually no more than 3 pips wide (i.e.,0.0003). Competition is greatly increased with larger transactions, and pipspreads shrink on the major pairs to as little as 1 to 2 pips.

Market participants

Financial markets

Public market

Exchange
http://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Retail_forex_platformhttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/IFSLhttp://en.wikipedia.org/wiki/IMFhttp://en.wikipedia.org/wiki/IMFhttp://en.wikipedia.org/wiki/Special_Drawing_Rightshttp://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-6http://en.wikipedia.org/wiki/Bid/ask_spreadhttp://en.wikipedia.org/wiki/Bid/ask_spreadhttp://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/w/index.php?title=Market_taker&action=edit&redlink=1http://en.wikipedia.org/wiki/Percentage_in_pointhttp://en.wikipedia.org/wiki/Base_currencyhttp://en.wikipedia.org/wiki/Base_currencyhttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Exchange_(organized_market)http://en.wikipedia.org/wiki/File:Bruxelles_Bourse.jpghttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Retail_forex_platformhttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/IFSLhttp://en.wikipedia.org/wiki/IMFhttp://en.wikipedia.org/wiki/Special_Drawing_Rightshttp://en.wikipedia.org/wiki/Foreign_exchange_market#cite_note-6http://en.wikipedia.org/wiki/Bid/ask_spreadhttp://en.wikipedia.org/wiki/Bid/ask_spreadhttp://en.wikipedia.org/wiki/Market_makerhttp://en.wikipedia.org/w/index.php?title=Market_taker&action=edit&redlink=1http://en.wikipedia.org/wiki/Percentage_in_pointhttp://en.wikipedia.org/wiki/Base_currencyhttp://en.wikipedia.org/wiki/Base_currencyhttp://en.wikipedia.org/wiki/Financial_markethttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Exchange_(organized_market)


6/18

Securities

Bond market

Fixed income

Corporate bondGovernment bond

Municipal bondBond valuationHigh-yield debt

Stock market

StockPreferred stockCommon stock

Registered share

Voting shareStock exchange

Derivatives market

SecuritizationHybrid security

Credit derivativeFutures exchange

OTC, non organized

Spot marketForwards

SwapsOptions

Foreign exchange

Exchange rateCurrency

Other markets

Money marketReinsurance marketCommodity marketReal estate market

Practical trading

ParticipantsClearing house

Financial regulation
http://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Fixed_incomehttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Government_bondhttp://en.wikipedia.org/wiki/Municipal_bondhttp://en.wikipedia.org/wiki/Bond_valuationhttp://en.wikipedia.org/wiki/High-yield_debthttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Common_stockhttp://en.wikipedia.org/wiki/Registered_sharehttp://en.wikipedia.org/wiki/Voting_sharehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Securitizationhttp://en.wikipedia.org/wiki/Hybrid_securityhttp://en.wikipedia.org/wiki/Credit_derivativehttp://en.wikipedia.org/wiki/Futures_exchangehttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Spot_markethttp://en.wikipedia.org/wiki/Forward_contracthttp://en.wikipedia.org/wiki/Swap_(finance)http://en.wikipedia.org/wiki/Option_(finance)http://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Reinsurance_markethttp://en.wikipedia.org/wiki/Commodity_markethttp://en.wikipedia.org/wiki/Real_estate_markethttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Financial_market_participantshttp://en.wikipedia.org/wiki/Clearing_house_(finance)http://en.wikipedia.org/wiki/Financial_regulationhttp://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Fixed_incomehttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Government_bondhttp://en.wikipedia.org/wiki/Municipal_bondhttp://en.wikipedia.org/wiki/Bond_valuationhttp://en.wikipedia.org/wiki/High-yield_debthttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Preferred_stockhttp://en.wikipedia.org/wiki/Common_stockhttp://en.wikipedia.org/wiki/Registered_sharehttp://en.wikipedia.org/wiki/Voting_sharehttp://en.wikipedia.org/wiki/Stock_exchangehttp://en.wikipedia.org/wiki/Derivatives_markethttp://en.wikipedia.org/wiki/Securitizationhttp://en.wikipedia.org/wiki/Hybrid_securityhttp://en.wikipedia.org/wiki/Credit_derivativehttp://en.wikipedia.org/wiki/Futures_exchangehttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Spot_markethttp://en.wikipedia.org/wiki/Forward_contracthttp://en.wikipedia.org/wiki/Swap_(finance)http://en.wikipedia.org/wiki/Option_(finance)http://en.wikipedia.org/wiki/Exchange_ratehttp://en.wikipedia.org/wiki/Currencyhttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Reinsurance_markethttp://en.wikipedia.org/wiki/Commodity_markethttp://en.wikipedia.org/wiki/Real_estate_markethttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Financial_market_participantshttp://en.wikipedia.org/wiki/Clearing_house_(finance)http://en.wikipedia.org/wiki/Financial_regulation


7/18

Finance seriesBanks and bankingCorporate financePersonal finance

Public financev d e

Unlike a stock market, the foreign exchange market is divided into levels of access.At the top is the inter-bank market, which is made up of the largest commercialbanks and securities dealers. Within the inter-bank market, spreads, which are thedifference between the bid and ask prices, are razor sharp and usually unavailable,and not known to players outside the inner circle. The difference between the bidand ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as theEUR). This is due to volume. If a trader can guarantee large numbers of transactions

for large amounts, they can demand a smaller difference between the bid and askprice, which is referred to as a better spread. The levels of access that make up theforeign exchange market are determined by the size of the "line" (the amount ofmoney with which they are trading). The top-tierinter-bank market accounts for 53%of all transactions. After that there are usually smaller banks, followed by large multi-national corporations (which need to hedge risk and pay employees in differentcountries), large hedge funds, and even some of the retail FX-metal market makers.According to Galati and Melvin, Pension funds, insurance companies, mutual funds,and other institutional investors have played an increasingly important role infinancial markets in general, and in FX markets in particular, since the early 2000s.(2004) In addition, he notes, Hedge funds have grown markedly over the 20012004 period in terms of both number and overall size Central banks also participatein the foreign exchange market to align currencies to their economic needs.

Banks

The interbank market caters for both the majority of commercial turnover and largeamounts of speculative trading every day. A large bank may trade billions of dollarsdaily. Some of this trading is undertaken on behalf of customers, but much isconducted by proprietary desks, trading for the bank's own account. Until recently,foreign exchange brokers did large amounts of business, facilitating interbank tradingand matching anonymous counterparts for large fees. Today, however, much of thisbusiness has moved on to more efficient electronic systems. The broker squawk boxlets traders listen in on ongoing interbank trading and is heard in most trading rooms,but turnover is noticeably smaller than just a few years ago.

Commercial companies

An important part of this market comes from the financial activities of companies

seeking foreign exchange to pay for goods or services. Commercial companies oftentrade fairly small amounts compared to those of banks or speculators, and their
http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Personal_financehttp://en.wikipedia.org/wiki/Public_financehttp://en.wikipedia.org/wiki/Template:Financial_marketshttp://en.wikipedia.org/wiki/Template_talk:Financial_marketshttp://en.wikipedia.org/w/index.php?title=Template:Financial_markets&action=edithttp://en.wikipedia.org/wiki/Commercial_bankshttp://en.wikipedia.org/wiki/Commercial_bankshttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Percentage_in_pointhttp://en.wikipedia.org/wiki/Top-tierhttp://en.wikipedia.org/w/index.php?title=Inter-bank_market&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Broker_squawk_box&action=edit&redlink=1http://en.wikipedia.org/wiki/Trading_roomhttp://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Personal_financehttp://en.wikipedia.org/wiki/Public_financehttp://en.wikipedia.org/wiki/Template:Financial_marketshttp://en.wikipedia.org/wiki/Template_talk:Financial_marketshttp://en.wikipedia.org/w/index.php?title=Template:Financial_markets&action=edithttp://en.wikipedia.org/wiki/Commercial_bankshttp://en.wikipedia.org/wiki/Commercial_bankshttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Percentage_in_pointhttp://en.wikipedia.org/wiki/Top-tierhttp://en.wikipedia.org/w/index.php?title=Inter-bank_market&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Broker_squawk_box&action=edit&redlink=1http://en.wikipedia.org/wiki/Trading_room


8/18

trades often have little short term impact on market rates. Nevertheless, trade flowsare an important factor in the long-term direction of a currency's exchange rate.Some multinational companies can have an unpredictable impact when very largepositions are covered due to exposures that are not widely known by other marketparticipants.

Central banks

National central banks play an important role in the foreign exchange markets. Theytry to control the money supply, inflation, and/or interest rates and often have officialor unofficial target rates for their currencies. They can use their often substantialforeign exchange reserves to stabilize the market. Nevertheless, the effectiveness ofcentral bank "stabilizing speculation" is doubtful because central banks do not gobankrupt if they make large losses, like other traders would, and there is noconvincing evidence that they do make a profit trading.

Forex Fixing

Forex fixing is the daily monetary exchange rate fixed by the national bank of eachcountry. The idea is that central bank use the fixing time and exchange rate toevaluate behavior of their currency. Fixing exchange rates reflects the real value ofequilibrium in the forex market. Banks, dealers and online foreign exchange tradersuse fixing rates as a trend indicator.

The mere expectation or rumor of central bank intervention might be enough tostabilize a currency, but aggressive intervention might be used several times eachyear in countries with a dirty float currency regime. Central banks do not alwaysachieve their objectives. The combined resources of the market can easilyoverwhelm any central bank Several scenarios of this nature were seen in the 199293 ERM collapse, and in more recent times in Southeast Asia.

Hedge funds as speculators

About 70% to 90% of the foreign exchange transactions are speculative. In other

words, the person or institution that bought or sold the currency has no plan toactually take delivery of the currency in the end; rather, they were solely speculatingon the movement of that particular currency. Hedge funds have gained a reputationfor aggressive currency speculation since 1996. They control billions of dollars ofequity and may borrow billions more, and thus may overwhelm intervention bycentral banks to support almost any currency, if the economic fundamentals are inthe hedge funds' favor.
http://en.wikipedia.org/wiki/Money_supplyhttp://en.wikipedia.org/wiki/Interventionhttp://en.wikipedia.org/wiki/Managed_float_regimehttp://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanismhttp://en.wikipedia.org/wiki/Hedge_fundhttp://en.wikipedia.org/wiki/Equity_investmenthttp://en.wikipedia.org/wiki/Money_supplyhttp://en.wikipedia.org/wiki/Interventionhttp://en.wikipedia.org/wiki/Managed_float_regimehttp://en.wikipedia.org/wiki/European_Exchange_Rate_Mechanismhttp://en.wikipedia.org/wiki/Hedge_fundhttp://en.wikipedia.org/wiki/Equity_investment


9/18

Investment management firms

Investment management firms (who typically manage large accounts on behalf ofcustomers such as pension funds and endowments) use the foreign exchange

market to facilitate transactions in foreign securities. For example, an investmentmanager bearing an international equity portfolio needs to purchase and sell severalpairs of foreign currencies to pay for foreign securities purchases.

Some investment management firms also have more speculative specialist currencyoverlay operations, which manage clients' currency exposures with the aim ofgenerating profits as well as limiting risk. Whilst the number of this type of specialistfirms is quite small, many have a large value of assets under management (AUM),and hence can generate large trades.

Retail foreign exchange brokersRetail traders (individuals) constitute a growing segment of this market, both in sizeand importance. Currently, they participate indirectly through brokers or banks. Retailbrokers, while largely controlled and regulated in the USA by the CFTC and NFAhave in the past been subjected to periodic foreign exchange scams. To deal withthe issue, the NFA and CFTC began (as of 2009) imposing stricter requirements,particularly in relation to the amount of Net Capitalization required of its members. Asa result many of the smaller, and perhaps questionable brokers are now gone.

There are two main types of retail FX brokers offering the opportunity for speculativecurrency trading: brokers and dealers ormarket makers. Brokers serve as an agentof the customer in the broader FX market, by seeking the best price in the market fora retail order and dealing on behalf of the retail customer. They charge a commissionor mark-up in addition to the price obtained in the market. Dealers ormarket makers,by contrast, typically act as principal in the transaction versus the retail customer,and quote a price they are willing to deal atthe customer has the choice whether ornot to trade at that price.

In assessing the suitability of an FX trading service, the customer should considerthe ramifications of whether the service provider is acting as principal or agent.

When the service provider acts as agent, the customer is generally assured of aknown cost above the best inter-dealer FX rate. When the service provider acts asprincipal, no commission is paid, but the price offered may not be the best availablein the marketsince the service provider is taking the other side of the transaction, aconflict of interest may occur

FOREIGN EXCHANGE DEALERS

ASSOCIATION OF INDIA
http://en.wikipedia.org/wiki/Currency_Overlayhttp://en.wikipedia.org/wiki/Currency_Overlayhttp://en.wikipedia.org/wiki/Commodity_brokerhttp://en.wikipedia.org/wiki/Commodity_Futures_Trading_Commissionhttp://en.wikipedia.org/wiki/National_Futures_Associationhttp://en.wikipedia.org/wiki/Forex_scamhttp://en.wikipedia.org/wiki/Currency_Overlayhttp://en.wikipedia.org/wiki/Currency_Overlayhttp://en.wikipedia.org/wiki/Commodity_brokerhttp://en.wikipedia.org/wiki/Commodity_Futures_Trading_Commissionhttp://en.wikipedia.org/wiki/National_Futures_Associationhttp://en.wikipedia.org/wiki/Forex_scam


10/18

Foreign Exchange Dealer's Association of India (FEDAI) was set up in 1958 as an

Association of banks dealing in foreign exchange in India (typically called

Authorised Dealers - ADs) as a self regulatory body and is incorporated under

Section 25 of The Companies Act, 1956. It's major activities include framing of

rules governing the conduct of inter-bank foreign exchange business among

banks vis--vis public and liaison with RBI for reforms and development of forex

market.

Presently some of the functions are as follows:

Guidelines and Rules for Forex Business.

Training of Bank Personnel in the areas of Foreign Exchange Business. Accreditation of Forex Brokers

Advising/Assisting member banks in settling issues/matters in their

dealings.

Represent member banks on Government/Reserve Bank of India/Other

Bodies.

Announcement of daily and periodical rates to member banks.

Due to continuing integration of the global financial markets and increased pace

of de-regulation, the role of self-regulatory organizations like FEDAI has also

transformed. In such an environment, FEDAI plays a catalytic role for smooth

functioning of the markets through closer co-ordination with the RBI, other

organizations like FIMMDA, the Forex Association of India and various market

participants. FEDAI also maximizes the benefits derived from synergies of

member banks through innovation in areas like new customized products, bench

marking against international standards on accounting, market practices, risk

management systems, etc.

INDIAN COMPANIES LISTED ON FOREIGN

MARKET:- FRANKFURT STOCK EXCHANGE

Activity of Indian companies on the Frankfurt Stock Exchange has been impressiveto say the least. At Deutsche Brse, all Indian equity instruments are actively tradedwithin the unregulated market. Deutsche Brses Indian equity instruments are


11/18

significantly more liquid compared to London SE and Luxembourg SE. Companiesfrom almost all sizes are most liquid at Deutsche Brse.

In total about 1.5 bn is invested in Indian companies by German investors. Thebiggest German investor is DWS.

IT / Telecom, Utilities / Energy, Financials, Automobile and Consumers are the majorfocus of German Investors. These hot topic sectors are the corner stone of theIndian economy and make for great IPO and listing candidates.

In February 2007 the Deutsche Borse AG (Frankfurt Stock Exchange) purchased 5%of the Bombay Stock Exchange (BSE) which led to the November 2008 cooperationagreement in which both partners agreed to simplify access to their stock exchangesfor companies in their respective markets.

Examples of Indian Listed CompaniesAXIS BANK LTD

BAJAJ HLDG+INDV.GDR S IR10

CROMPTON GREAVES

DR REDDYS LABS

FINL TECHS I.GDR REG S/7

GAIL INDIA

GT EASTERN ENERGY

HDFC BANK LTD

ICICI BANK LTD ADR/2

INDIABULLS REAL

INFOSYS TECHS

LARSEN+TOUBRO

MAHANAGAR TELE NIG.

MAHINDRA+MAHIN.GDR/REG.S

PATNI COMP. SYS

RANBAXY LABORATORY


12/18

REDIFF.COM I.ADR0,5 IR-05

RELIANCE INFRASTRUCTURE

RELIANCE INDUSTRIES

SATYAM COMPUTER

SIFY TECHNOLOGIES LTD

STATE BANK OF INDIA

STEEL AUTH. OF. IND

STERLITE IND

SUZLON ENERGY LTD

TATA COMMUNICATIONS

TATA MOTORS

TATA STEEL

WIPRO LTD

Reasons For Indian Companies toList:

The liquidity situation of the different international stock exchanges has shown that,in general, liquidity in stock trading in Frankfurt is significantly higher. Greaterliquidity through higher trading volumes is a good basis for a fair valuation of acompany on the capital markets.

The approved indices of the Frankfurt Stock Exchange increase the visibility of

Indian companies and attract the attention of Indian and European investors alike. InGermany, Indian companies come together with analysts with expertise in a specificsector, especially in those sectors where Germany is particularly strong.

Companies can access investors all over the world through the Xetra tradingplatform of the Frankfurt Stock Exchange. Currently, a total of over 250 tradingmembers are listed on XETRA.

A range of market segments which allow issuers to choose the market segment thatbest suits them, taking into account access criteria, post-admission obligations andthe objectives pursued by the listing. The listing procedure at the Frankfurt Stock

Exchange is one of the fastest in the world and the listing fees are highly attractivecompared to other international Frankfurt Stock Exchange competitors.


13/18

Particularities In Connection With Indian Issuers One specific concern for Indianissuers is that, according to Indian law, a direct listing of shares of an Indiancompany on a foreign stock exchange is not possible. A direct admission would beconceivable only via a holding structure if the holding (and issuer of the shares to beadmitted) has its registered office outside of India and only the operational

companies are located in India. Due to common language and laws, it isrecommended this would be done via a UK Holding Company.

Choice Of Market Segments On The Frankfurt Stock Exchange Issuers at theFrankfurt Stock Exchange can choose between the Regulated Market (GeneralStandard/ Prime Standard) and the stock exchange only-regulated Open Market(First/Second Quotation Board and Entry Standard). In principle, access to theRegulated Market is only possible with a securities prospectus approved by thesupervisory authority in the issuers home member state within the EuropeanEconomic Area (EEA). Moreover, issuers in the Regulated Market are subject to thepost-admission obligations of the EU Transparency Directive as implemented in

German law. As regards post-admission obligations, the Prime Standard offered bythe Frankfurt Stock Exchange to its issuers is a quality segment that imposes evenstricter requirements on issuers than the EU Transparency Directive.

Admission to the Open Market (First Quotation Board and Entry Standard segments)does not in require a securities prospectus. In this respect and in comparison tosome European competitors requiring a document similar to a prospectus foradmission to their stock exchange regulated market segments, the Frankfurt StockExchange provides easier, faster and less costly access to capital markets,especially as the drafting of a securities prospectus or comparable document is bothtime consuming and costly for the issuer.

Whereas no post-listing obligations have to be observed for the First QuotationBoard segment listing, issuers for the Entry Standard undertake to comply withcertain post-listing reporting requirements.

SOME INDIAN COMPANIES LISTED ON

LONDON STOCK MARKET:-

ACC LTDAMTEK AUTOASHOK LEYLAND

AXIS BANK LTDBAJAJ AUTOCESCCROMPTON GREAVESEIHELECTROSTEEL CASTINGSFEDERAL BANKGAIL(INDIA)

GREAT EASTERN ENERGY CORPHEXAWARE TECHNOLOGIES LD


14/18

HIMACHAL FUTURISTIC COMMUNICATIONSINDIAN HOTELS CO(THE)LLOYD ELECTRIC & ENGINEERINGNOIDA TOLL BRIDGE COREI AGRO

RELIANCE ENERGYROLTA INDIASIEL

SREI INFRASTRUCTURE FINANCESSISTATE BANK OF INDIA

STEEL AUTHORITY OF INDIASUBEX AZURE LTDTATA TEA

Indian companies listed on the London Stock Exchange (LSE) continued tooutperform others in the first quarter of 2010, with industry observers expecting moreIndian entities to list on the exchange to raise funds in the near future.

Share prices of Indian companies listed on LSE continue to outperform both the AIMAll-Share and the FTSE 100, according to India Watch, a quarterly review due to bereleased by business and financial adviser Grant Thornton.

AIM is the LSE's international market for smaller growing companies.

A wide range of businesses, including early stage, venture capital backed as well asmore established companies join AIM seeking access to growth capital.

The adviser said a host of Indian companies were closely watching Indian energymajor Essar Energy's planned 1.6 billion pound listing of a minority stake to decide ifthey too should seek a listing in London.

Anuj Chande, head of Grant Thornton's south Asia group, said: "The outstandingperformance of Indian firms listed in London is encouraging other Indian firms to lookinto raising funds here.

In early March, more than 70 Indian firms attended a roadshow hosted by theLondon Stock Exchange in New Delhi, Mumbai and Hyderabad."

He added: "A lot of these will be holding their breath to see if Essar Energy can pulloff the biggest primary listing that London has seen in ten years."

Chande said Grant Thornton was in advanced negotiations with another Indianpower provider for an initial public offering it planned in London later this year.

Ten more Indian companies were planning to raise capital in London this year, he

revealed.


15/18

The India Watch index rose 8 per cent in the first quarter of 2010 and is 3.4 timeshigher than twelve months earlier, having risen a staggering 237 per cent since April1, 2009.

By comparison, the AIM All-Share recorded gains of 70 per cent since April 1, 2009,

while the FTSE 100 has seen a 45 per cent rise.

In the first quarter of 2010, the AIM All-Share rose by 7.5 per cent, while the FTSE100 was 5 per cent up.

"Indian stocks listed in London are showing a robust performance. Our India WatchIndex shows that they have achieved a remarkable 70 per cent rise since the eve ofthe credit crisis in January 2007," Chande said.

The India Watch index has also outperformed other indices in previous years: Sinceits inception in 2007, the India Watch price index has gained 70 per cent.

IMPLICATION ON INDIAN COMPANIES

AND ECONOMY:-

With a gross domestic product that is growing by more than 7 percent a year, Indiahas made remarkable progress since opening its economy, in 1991. The country hasaccomplished this feat despite the substantial handicap of an underdevelopedfinancial

sector.At about $900 billion, India's stock of financial assetsincluding bank deposits,equities, and debt securitiesis one-fifth the size of China's (Exhibit 1).1 The gap iswidening: by 2010, China's financial stock will reach $9 trillion, while India's willremain below $2 trillion.

But in allocating capital, particularly to private companies, India's financial system ismore effective than China's, largely because the market share of more efficientforeign and privately owned banks in India has crept up to 25 percent. Manynonperforming loans have been cleaned up, and while the true figure is hard todetermine, they are now estimated at around 9 percent of all lending,2 compared

withup to 40 percent in China. India's stock market is booming, and its best companieslistshares abroad.Still, to finance economic growth, India must raise its investment rate substantially,asMcKinsey Global Institute (MGI) research shows. If that is to happen, the financialsystem must mobilize savings more effectivelya goal that calls for reducing thegovernment's fiscal deficit, which crowds out private investment, and for reformingbanks and capital markets. The government resists these steps for fear of job losses.Ultimately, however, the effect would be to create hundreds of thousands of new

jobsin the financial sector and to generate faster growth in the whole economy.


16/18

Elusive savingsWhy is the stock of financial assets so small? Not because Indians save too little:although the country's gross national savings rate is half of China's, it isn't bad byinternational standards (Exhibit 2). Furthermore, chronic government budget deficitsdepress the savings rate. Despite the fact that Indians should save more, the main

challenge is to capture more of the existing savings.India nationalized banks in 1969 in order to provide banking service to the masses.But penetration is low: just 40 percent of households have signed up as borrowers ordepositors. Deposits represent 60 percent of GDP, compared with 190 percent inChina and 142 percent in Japan.India's capital markets have hardly done better to mobilize savings. Retail investorsare few, though the stock market lists roughly 5,000 companies, has a marketcapitalization that (at roughly 50 percent of GDP) is comparable to the eurozone's,and offers a variety of derivatives and other complex products. Corporate bondsmakeup 1 percent of India's stock of financial assets, compared with 10 percent in

Thailand,20 percent in Malaysia, and 30 percent or more in South Korea, the United States,andmost of Europe.Instead of putting money into financial assets, Indian households invest more thanhalf of their savings in physical ones such as land, houses, cattle, and gold (Exhibit3).In rural areas, the proportion is even higher. In fact, India's peoplemistrustful ofbanksare the world's largest consumers of gold. They possess $200 billion of it,equal to nearly half of the country's bank deposits, and last year bought $10 billionworth, nearly twice the amount of the foreign direct investment India received.Households could earn higher returns by investing in financial assets, and thecountrywould be better off if savings were pooled to finance more productive investments.Efficiency: India's advantageRoom for improvement remains, but the Indian financial system is better than itsChinese counterpart at allocating capital, as demonstrated by India's improving levelof nonperforming loans and the amount of capital funneled to private industry. India'sbanks have made a big effort over the past two years to clean up nonperformingloans.Although the current level is still higher than it is in developed countries, it is a

fraction of China's. Continuing to follow good lending policies will be vital. As thelow interest rates that have recently kept some loans afloat start to rise, banks willprobably be tested.Private-sector companies in India have better access to funds than do those inChina.Small and midsize enterprises account for 45 percent of India's bank loans tobusinesses and generate 23 percent of the industry's revenues. According to theWorldBank, 54 percent of small and midsize Indian companies had access to bankoverdraftfacilities in 2002, as compared with 26 percent of Chinese ones.3 All but 60 of the

roughly 5,000 companies listed on the Bombay Stock Exchange are privately ownedor foreign joint ventures, which together account for roughly 70 percent of its market


17/18

cap. Private-sector companies represent a small fraction of the market cap of theShanghai Stock Exchange.Nonetheless, capital could be allocated more efficiently. The Reserve Bank of Indiastill insists that priority sectors (such as agriculture and small business) receive atleast 40 percent of all loans and advances and that 25 percent of all bank branches

serve rural and semi-urban areas. These requirements distort lending decisions andoperational efficiency. Of the loans to priority sectors, 23 percent, far higher than thelevel elsewhere in the economy, end up as nonperformingevidence that the scaleofthis lending makes little sense (see "What Indian consumers want from banks").What's more, "lazy banking" constrains lending. Interest rates in India fell constantlyover the past decade, and as bond prices rose banks could make easy money byusingdeposits to buy government bonds financing the fiscal deficit. Windfall treasury gainsmade banks more profitable but crowded out lending and private investment. Indianbanks hold government bonds equal to 46 percent of their deposits, far more than

thestatutory minimum and nearly equal to their lending.4 In 2003, two-thirds of the newassets that India's commercial banks acquired were government securities. Over thepast year, however, interest rates have stabilized and the banks are realizing thattheymust focus again on lending.

CONCLUSION:-

I presume that you are talking about the impact of Dollars on the IndianEconomy. If the Dollars become cheaper in terms of Indian Rupees, it wouldbenefit the Indian Importers as then they would have to pay lesser rupees tobuy Dollars for making payment to the American exporters and the IndianExporters will suffer as they would receive less Indian Rupees after convertingtheir receipts in Dollars to Indian Rupees . In case the US DOLLAR becomesexpensive in terms of Indian Rupees, then the Indian Importers will suffer asthey would then have to shell out more Rupees to buy dollars for making

payment to American Exporters and Indian Exporters would benefit as nowthey would receive more Rupees after converting their Dollar Receipts.

If the Indians perceive the Results of US ELECTION to be favourable to theIndian Economy, then the demand for US DOLLARS by Indians could riseand this would make the Dollars expensive in terms of the Indian Rupees andvice versa.

THANK YOU


18/18

term paper of sanskriti

Documents