Foreign Exchange Markets

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What is FOREX Market?
is an over the counter market.
Through it we can convert one country’s
currency into another.
Forex markets are quite decentralized.
Participants like market makers, brokers,
corporate and individual customers are
physically separated from each other.

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Forex Trading: what’s so
unique about it?
A Forex trader can work from home or office at his
chosen hours of work
first session of the trade i.e. the Asian session,
(Tokyo, Hong Kong, Singapore) starts on Sunday
evening at around 7.00 p.m. EST (Eastern
Standard Time)
the second session begins in London at 2.00 a.m.
EST
third and final session in New York at 7.00 a.m.
EST and ends at about 5.00 p.m. EST at Los
Angeles.

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World Forex Markets
They are mostly centered around organized
markets like New York, Tokyo, London, Zurich,
Hong Kong, Singapore etc.
they daily trade hundreds of billions of dollars
worth of currencies of the world.
Forex market is infact, an abstract concept for
there is no such single location, say like the
Mumbai stock exchange.
It is merely an over the counter market.

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Major Forex Currencies
USD : US Dollar
EUR : EURO
GBP : British Pound
JPN : Japanese Yen
CHF : Swiss Franc
AUD : Australian Dollar
CAD : Canadian Dollar

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Foreign Exchange Markets
Spot markets
Forward markets
Futures markets (In India, yet not permissible)
Options markets
Swaps markets

Futures, options and swaps are called derivatives because

they derive their value from the underlying exchange
rates.
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Spot Market
For Example:
 Current Price is USD/INR = 42.50
 If a person wants to buy $1000 US
then he has to pay Rs.42,500/- to
the seller.

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Forward Market
For Example:
 The current price for USD/CNY =
7.6650
 Buy the forward of $100,000 @ 7.6500
for 3 month period.
 Suppose, if CNY depreciates to 7.7500
after 3 months Then, sell it at 7.7500
and have the gain of CNY 10000
($100000 X 0.1)

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Future Market
Just same as Forward Contract, but a
regulatory, like any exchange is the
intermediary in the Future contract.
In India, CCI will be the regulatory for
the Future Market.
CCI is the Clearing Corporation of India,
a RBI subsidiary.
Currency Future will be permissible in
India within 6 to 8 months.

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Option Market
Call Option: “Right to Buy”
 A person enters in the contract of a call
option, having option of 3 month with
the price of 40Rs./USD.
 After 3 months, if the spot price is
higher than 40, say 42/USD.
 then also the buyer has right to buy that
lot at the rate of 40Rs./USD
 By this way he can save 2Rs./USD.

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Option Market
Put Option: “Right to Sell”
 In previous example, after 3 month, if
Rupee appreciates and reach the level
of 38Rs./USD
 Then also that person can sell that lot at
the rate of 40Rs/USD
 Again, gain of 2Rs/USD!!

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Swap markets
Currency Swap is a foreign exchange
agreement between two parties to exchange a
given amount of one currency for another and,
after a specified period of time, to give back
the original amounts swapped.
For example:
 A U.S. based company needs to acquire Swiss
francs and a Swiss-based company needs to
acquire U.S. dollars.
 These two companies could arrange to swap
currencies by establishing an interest rate, an
agreed upon amount and a common maturity
date for the exchange.

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Forex Market In India
In India, the economic liberalization in the
early nineties provided the economic rationale
for the introduction of FX derivatives.
India’s share in worldwide foreign exchange
market turnover has grown to 0.9% this year,
marking a three-fold jump from just 0.3% in
2006.
This is the fastest increase in market share for
any other country in the world, according to
data compiled by Switzerland-based Bank for
International Settlement (BIS).

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Thank You....