presentation on foreign exchange, Summaries of Financial Market

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Foreign

Exchange

Market

BY-

AVI VANI

SAVNI CHOUDHARI

What is Foreign Exchange?

 In narrow terms, Forex simply means foreign

currency or money other than the domestic

currency or money

In Broader Terms, Forex Means

Study of all the currencies of the different

countries

How they are exchanged or traded with each

other

Exchange rates and how they are set

Foreign Exchange Market-World View

• (^) Globally, operations in the foreign exchange market started in a major way after the breakdown of the Bretton Woods system in 1971 , which also marked the beginning of floating exchange rate regimes in several countries.
• (^) Over the years, the foreign exchange market has emerged as the largest market in the world.
• (^) The decade of the 1990s witnessed a perceptible policy shift in many emerging markets towards reorientation of their financial markets in terms of new products and instruments , development of institutional and market infrastructure and realignment of regulatory structure

Foreign Exchange Market in India

• (^) The changing contours were mirrored in a rapid expansion of foreign exchange market in terms of participants , transaction volumes, decline in transaction costs and more efficient mechanisms of risk transfer.
• (^) The origin of the foreign exchange market in India could be traced to the year 1978 when banks in India were permitted to undertake intra-day trade in foreign exchange.
• (^) However, it was in the 1990s that the Indian foreign exchange market witnessed far reaching changes along with the shifts in the currency regime in India.

F.E.D.A.I ‰ 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 Authorized 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-à-vis public and liaison with RBI for reforms and development of

Functions of F.E.D.A.I

• (^) Guidelines and rules for the forex business
• (^) Training of bank personnel in the areas of Forex business
• (^) Accreditation of brokers
• (^) Advising / Assisting member banks in settling issues, matters in their dealings
• (^) Represent member banks on Govt, R.B.I. and other bodies
• (^) Announcement of daily and periodical rates to member banks
• (^) Prescribing margin for calculating exchange rates for various merchant transactions.Formulating code of conduct for dealers working in banks exchange brokers for dealing between each other

operates 24 hours a day

Forex does not have a financial center or any transaction. The foreign exchange market is the market "interbank", and based on electronic transactions between systems linked together banks

Types of Exchange Rate

• (^) Floating Rate – A completely floating exchange rate is one whose level is determined exclusively by underlying balance of supply and demand for the currencies involved with no outside intervention i.e. Cable, Euro/$
• (^) Fixed Rate – A fixed exchange rate is one in which case the government guarantees a stable price for foreign currency. This achieved through interventions by central bank whenever exchange rate varies from a stated % from fixed rate i.e. Kuwaiti Dinar.
• (^) • Managed Float – It is a system where the authorities manipulate the exchange rate to suit their own objectives, sometimes intervening to fix the rate sometimes staying on the sidelines. This type of compromise is known as a Managed or Dirty

TYPES OF MARKETS

NATURE OF FOREX MARKET

Factors-

Commercial bank

• Trading on behalf of clients or on behalf of itself.
• Bank foreign exchange transactions conducted with two goals:
• • Trading business for yourself
• • Provides services for customers

H1: Exchange rate volatility has effect on the stock market fluctuations.

• For testing the hypothesis average value of five currencies USD. JPY, CHF. EUR, GBP is taken. On X axis % change in currencies are taken as X an independent variable and % change in yearly value of Sensex is taken as Y, then correlation is calculated and interpretation is given after the value of correlation. In each case validity of correlation value is interpreted. PRACTICAL -