understanding currency market different aspects of currency market and forex market

1. S
t
r
u
c
t
u
r
e
AnneshaBanerjee
168905

2. 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
✓ The Exchange markets
✓ The Participants

3. Nature
Volatile, affected by hedger, arbitrager, speculator.
Affected by demand and supply.
Affected by rate of interest.
Affected by balance of payment surplus and deficit.
Affected inflation rate.
Spot and forward rates are different.
Affected by the economic stability of the country.
Affected by the fiscal policy of the government.
Affected by the political condition of the country.
It can be quoted directly or indirectly

4. Function of a Forex Department
Financial
Derivatives
Export
Import
Statistics
Remittances

5. Operation of foreign exchange market
Spot Market: (Current Market)
Spot market for foreign exchange is that market which handles only spot
transaction or current transactions.
Forward Market:
Forward Market for foreign exchange is that market which handles such
transaction of foreign exchange as are meant for future delivery.

6. Exchange Rate
►Fixed Exchange Rate System
Fixed rates provide greater certainty for exporters and
importers.
►Flexible Exchange Rate System
Flexible exchange rate or floating exchange rates change freely
and are determined by trading in the forex market.

7. Foreign Exchange Market in India
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
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 use of leverage to enhance profit and loss margins and with respect to
account size.

8. Structure of Forex Market in
India
Foreign
Exchange
Market
RBI
Authorised
person
Authorised
money
changers
Full fledged Restricted
Authorised
money dealers
F.E.D.A.I
Central
Government

9. Authorised Persons
Authorised
Persons
Authorised
Dealers
Financial
institutions
Full Fledged
Money
Changers
Others

10. 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 Forex market

11. 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

12. Forex Market - Features
• It Is A Market Connected By Advanced Communication Channels
Like S.W.I.F.T.
• It Is An Extremely Active And Also An Unpredictable Market.
• The Market Is Truly Global As Trades Take Place Across Continents.
• Most Deals Are On Spot Basis.
• The Market Is Deep, Liquid And Efficient.
• Deals Are Screen Based.
• Market Is Volatile Because Of Floating Nature Of
Exchange Rates