FOREIGN EXCHANGE MANAGEMENT

PRESENTED BY:VIJAY MANGAL SECTION-D

L2S2

Foreign Exchange MarketForeign exchange means the money of a

foreign country; that is, foreign currency bank balances, banknotes, checks and drafts.

A foreign exchange transaction is an agreement between a buyer and a seller that a fixed amount of one currency will be delivered for some other currency at a specified date.

Foreign Exchange MarketThe Foreign Exchange Market Provides:

The physical and institutional structure through which the money of one country is exchanged for that of another country

The determination rate of exchange between currencies

Is where foreign exchange transactions are physically completed

Functions of the Foreign Exchange MarketThe foreign exchange Market is the

mechanism by which participants:

Transfer purchasing power between countries

Obtain or provide credit for international trade transactions

Minimize exposure to the risks of exchange rate changes

Participants in the Foreign Exchange MarketAll Scheduled Commercial Banks

(Authorized Dealers only).Reserve Bank of India (RBI).Corporate Treasuries.Public Sector/Government.Inter Bank Brokerage Houses.Resident IndiansNon ResidentsSpeculators and Arbitragers

Foreign Exchange RegimeFixed:

-Austria, France, Italy, SpainPegged:

-Thailand, S. KoreaManaged Float:

-India, Bangladesh, SingaporeFree Floating:

-USA, UK, Japan

What is exchange rate ?Exchange Rate is the price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another. e.g. Rs. 51.42 per one USD

Major currencies of the World

USDEURO YENGBP CAN $Swiss FrancAus $

How Foreign Exchange Rates are Determined?

Types of MarketSpot Market:

Currencies traded for immediate delivery at rates prevailing at the time of transaction

Actual delivery (electronic transfer) may take two working days

Types of Market Contd….Forward Market:

In the forward market, contracts are made to buy & Sell currencies for future delivery, say one month two month ,three month & so on.

The rate of exchange for the transition is agree is agreed upon the very date the deal is finalized.

Global Foreign Exchange Market Turnover

0

100

200

300

400

500

600

700

800

1989 1992 1995 1998 2001

Spot

Forwards

Swaps

Source: Bank for International Settlements, “Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2001,” October 2001, www.bis.org.

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