Forex Project PPT

8/4/2019 Forex Project PPT

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Factors affecting the demand and supply- There are various factors in a macro-economic environment which affect the demand and supply of

a currency and in return affect the exchange rate.Interest Rates- If there are higher interest rates in home country then it will attract investments fromabroad in the form of FII, FDI and increased borrowings. This will lead to increased supply of foreign

currency. On the other hand, if the interest rates are higher in the other country, investments willflow out leading to decreased supply of foreign currency.

Rate of Inflation -If inflation rates are high then the central bank will have to reduce the supply ofdomestic currency in order to curb it. This would ultimately lead to strong currency and vice versa.

Political or Military Unrest - All exchange rates are susceptible to political instability andanticipations about the new government. All the market players get worried about the policies andmay start unwinding their positions thereby affecting the demand and supply.

Domestic Financial Market – Strong domestic financial markets will also lead to the strengtheningof domestic currency as investors will be less worried about their investments and vice versa.

Strong Domestic Economy- If the domestic economy is strong then there will be lots ofinvestments from abroad which will lead to increased supply of foreign currency, ultimately leading

to strengthening of domestic currency. And if there is weaker domestic economy it would lead tooutflow of funds from a country.Business Environment- Positive indications (in terms of government policy, competitive

advantages, market size, etc.) increase the demand for currency, as more and more enterpriseswant to invest there. Any positive indications abroad will lead to strengthening of foreign currency.



Stock Markets - The major stock indices also have a correlation with currency rates asinvestors link the growth in markets to the economic growth of a country.

Economic data: Economic data such as labor reports (payrolls, unemployment rateand average hourly earnings), Consumer Price Indices (CPI), Gross Domestic Product(GDP), International Trade, Productivity, Industrial Production, Consumer Confidence

etc, also affect fluctuations in currency exchange rates.Balance of trade- If the exports to other countries are more than the exchange rate will

be stronger as there will be inflow of foreign currency. More one relies on imports,

weaker will be the exchange rate because there will be outflow of domestic currency. Alarge, consistent government deficit will lead to outflow of domestic borrowing.

Government budget deficits/surpluses- If a government runs into deficit, it has toborrow money (by selling bonds). If it can't borrow from its own citizens, it must borrowfrom foreign investors. That means selling more of its currency, increasing the supply

and thus driving the prices down.

Rumors –

Any rumor in the markets also leads to fluctuation in the values. Anyfavourable news will lead to strengthening of domestic currency and any negative

rumor will lead to weakening of the currency.



Price determination- The Forex market like any other market is essentially governed by the law of

supply and demand. According to the law of supply, as prices rise for a givencommodity (in this case currency), the quantity of the item that is supplied will

increase; conversely, as the price falls, the quantity provided will fall. The law ofdemand states that as the price for an item rises, the quantity demanded will

fall. As the price for an item falls, the quantity demanded will rise.In the case of currency, it is the demand and supply of both domestic and

foreign currency that is considered. It is the interaction of these basic forces thatresults in the movement of currency prices in the Forex market.

Impact on Oil Oil is an important commodity. India's oil import growth is at a 5 year low of

5.33% in the first four months of the year 2007-08 as compared to massivegrowth rate of 43.23% last year. India's Oil imports during the period werevalued at US$ 19.878 billion as compared to 18.87 billion last year. We can't

say that oil consumption has decreased as economy is doing well soconsumption is bound to increase. On the other hand the price per barrel hasincreased sharply. So we can attribute this slowdown in growth to appreciation

of INR because this would have reduced the bills of the oil companies.



Appreciating currency – A Boon or Bane The question arises whether an appreciation of a currency is good or bad for a

country. We can say that it has its own advantages and disadvantages.Advantages- The importers have benefited as they have to pay less of domestic currency in orderto pay their bills in foreign currency. The foreign products have become cheaper forthe domestic consumer which helps in keeping the inflation down.Consumers benefit when they travel abroad as the domestic currency will be able to

fetch more of foreign currency while exchanging.Investors can buy foreign stocks and bonds at lower prices.Disadvantages- It has reduced the competitiveness of the exporters in the international markets astheir goods have become expensive.Many exporters have incurred huge losses on account of INR appreciation.It has also put pressure on the domestic suppliers as there will be inflow of foreigngoods and that to at lower prices.Foreign tourists will find it more expensive to visit the country.



The system by which one currency isexchanged for another; enables

international transactions to take place








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The importers have benefited asthey have to pay less of domestic

currency in order to pay their billsin foreign currency.

Consumers benefit when theytravel abroad as the domesticcurrency will be able to fetchmore of foreign currency while

exchanging.



It has reduced the competitiveness ofthe exporters in the international

markets as their goods have becomeexpensive.

Many exporters have incurred hugelosses on account of INR appreciation.It has also put pressure on the domesticsuppliers as there will be inflow offoreign goods and that to at lower prices.Foreign tourists will find it moreexpensive to visit the country.



• Non institutional customers for whomthe bank buys / sells $ in the spot or

forward markets• These are typically : – Exporters – Importers

– Capital account flows (FIIs, tradefinance borrowers) – Travellers / Exchange centers

• Corporates typically use the FX

markets to hedge their futurereceivables / payables.

• Corporates who may have kept theirspot positions open may also come tosell / buy $ in the spot markets



• In a buying transaction, the

price maker buys base / foreign currency at a rateknown as bid rate

• In a selling transaction, theprice maker sells foreigncurrency at a rate known asoffer/ask rate



• Cash - Delivery offorex on the same day

• Tom – Delivery of forexon the next day

• Spot - Delivery of forex

after two days• Forward - Delivery of

forex after few days



• Nostro account is a home bank’s

FX account for its FX deals (myaccount with you)

• Vostro account is a foreign bank’s

FX account for the home bank forthe foreign bank’s deals in home

bank’s currency (your account

with me)

• For e.g. an Indian bank’s $

account with a US bank is Indian

bank’s nostro account & US

bank’s vostro account



• MINE / I TAKE / BUY :

• Price taker buys the fixedcurrency.

• YOURS / I GIVE / SELL :

• Price taker sells the fixedcurrency.

• RISK / CHECK

• Please check the price whichwas made, as the same isnow changed

• HOW NOW

• Can ou lease re- uote



• CURRENCY NICK NAMES:

• GBP vs USD : Cable

• AUD : Oz, Aussie• NZD : KIWI

• Indian Rupee : RUP

• JPY : YEN







Money is hard to earn and easy to lose.Guard yours with care. Brian Tracy

Successful people save in prosperous times so they have a financial cushion in times of recession.

Financial security and independence are like a three-legged stool resting on savings, insurance and investments. Brian Tracy

http://www.achievementlibrary.com/brian-tr.htm






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Forex Project PPT