Group: A, Roll No: 1785878

A RESEARCH PAPER ON

"AN ANALYTICAL STUDY OF FOREGIN EXCHANGE

MARKET"
In practice fulfilment of the Requirement of Master of commerce
Degree course of Savitribai Phule University of Pune
SUBMITTED BY

SAMEER VASANT GAWADE

ROLL NO: 1785878

M.COM- PART-2, SEM-4

UNDER THE SUPERVISION AND GAIDANCE OF

PROF. MANJUSHA KULKARNI

SUBMITED TO

DEPARTMENT OF COMMERCE
PROGRESSIVE EDUCATION SOCIETY'S MORDEN COLLEGE OF ARTS SCIENCE AND
COMMERCE GANESHKHIND, PUNE-16,
2018-2019
 RESEARCH PAPER

 TITLE:

"AN ANALYTICAL STUDY OF FOREIGN EXCHANGE

MARKET"

 INTRODUCTION:

The project is about on foreign exchange market. The aim of this is to understand the
concept of the foreign exchange market and know the important of the foreign
exchange market in the economy and understand the foreign exchange rate policy.
Purpose of the foreign exchange market beyond coordinating payments, I foreign
exchange rates and market function as leading economic indicators. Investors and
institutions analyze these foreign exchange market trends to create wealth and manage
risks. The foreign exchange market is where traders buy and sell currencies. Foreign
exchange market are made up of banks, commercial companies, central banks,
Investment management firms, hedge funds and retail forex brokers and investors.

 SCOPE:

 Foreign exchange is important because it helps a country to pay its import bills
towards imported goods and services by its citizen or companies. When we import
goods and services from other foreign countries, we have to pay theam in their local
currency.
 India contributed very small part in the world currency market about 0.1% of world
forex market.
 The Primary function of a foreign exchange market is the transfer of purchasing
power from one country to another and from one currency to another.The
international clearing function performed by foreign exchange markets plays a very
important role in facilitating international trade and capital movement.
 The credit function performed by foreign exchange markets also plays a very
important role in the growth of foreign trade, for international trade depends to a
great extent on credit facilities. Exporters may get pre shipment and post shipment
credit. Credit facilities are available also for importers. The Euro dollar market has
emerged as a major international credit market.
 The other important of the foreign exchange market is to provide hedging facilities.
Heding refers to covering of foreign trade risks, and it provides a mechanism to
exporters and importers to guard themselves against losses arising from fluctuations
in exchange rates.
 RELEVANCE:

 National central banks play an important role in the foreign exchange markets. They
try to control the money supply, inflation, and/or interest rates and often have
official or unofficial target rates for their currencies
 As everyone knows, free markets are important because they voluntarily bring
together willing buyers and sellers. Supply and demand are the sine qua non of
economics. In fact, so important is their function that, in classical economic theory, a
free market occurs only when no single buyer or seller can determine price.
 Foreign exchange is important for one major reason: it determines the value of
foreign investment. A volatile exchange rate discourages foreign investment, as does
a high, stable one. A low, stable exchange rate, however, encourages foreign
investment, but at the price of the low-valued currency's economy.
 The forex market is the backbone of international trade and global investing. It is
critical to support imports and exports, which are necessary to gain access to
resources and to create additional demand for goods and services. Some investors
view currencies as an asset class and trade currencies to generate alpha.

 OBJECTIVES:

 To analyse and in-depth stady of foreign exchange market.

 To analyze exchange rate policy.

 LIMITATIONS:

 The analysis on purely based on secondary data. So any error in the data might also
affect the study undertaken.
 The foreign exchange market is a wide term and different different terms and
informations available on internet.
 Time is limited for this project.
 Very few studies have taken place in India relating to currency exposure
management.

 DEFINITIONS:

 The Foreign Exchange Market is a market where the buyers and sellers are involved
in the sale and purchase of foreign currencies. In other words, a market where the
currencies of different countries are bought and sold is called a foreign exchange
market.
 According to Investopedia: "The forex market is the market in which participants can
buy, sell, exchange, and speculate on currencies"
  The foreign exchange market is a global decentralized or over-the-counter market
for the trading of currencies. This market determines the foreign exchange rate. It
includes all aspects of buying, selling and exchanging currencies at current or
determined prices. -Wikipedia.

 SUGGESTIONS:

 All forex traders must ensure that they have selected their brockers with great care.
It is vital that the traders objectives, risk tolerance & overall knowledge mesh well
with the brokers systems & style.
 style A good strategy to have when trading in the foreign exchange market is
to have two accounts. One demo account & one real account. You should use
proven strategies on your real account & experiment on new ways with your
demo account. In foreign exchange market learning does not stop.
 exchange While the foreign exchange market runs around the dock and is
always open there are strategies in timing that you need to be aware of while
trading on foreign exchange understanding foreign exchange hours will help
you maximum your strategies by trading when there is hing potential for
winning a profit.

 DATA ANALYSIS:

 Types of Forex Market Analysis:

1. Fundamental Analysis: Fundamental analysis is often used to analyze

changes in the forex market by monitoring figures, such as interest rates,
unemployment rates, gross domestic product (GDP), and other types of
economic data that come out of countries. For example, a trader conducting a
fundamental analysis of the EUR/USD currency pair would find information on
the interest rates in the Eurozone more useful than those in the U.S. Those
traders would also want to be on top of any significant news releases coming
out of each Eurozone country to gauge the relation to the health of their
economies.

2. Technical Analysis: Technical analysis comes in the form of both manual and
automated systems. A manual system typically means a trader is analyzing technical
indicators and interpreting that data into a buy or sell decision. An automated trading
analysis means that the trader is "teaching" the software to look for certain signals
and interpret them into executing buy or sell decisions. Where automated analysis
could have an advantage over its manual counterpart is that it is intended to take the
behavioral economics out of trading decisions. Forex systems use past price
movements to determine where a given currency may be headed.
 3. Weekend Analysis: There are two basic reasons for doing a weekend analysis.
The first reason is that you want to establish a "big picture" view of a particular
market in which you are interested. Since the markets are closed and not in dynamic
flux over the weekend, you don't need to react to situations as they are unfolding, but
can survey the landscape, so to speak.

 Applying Forex Market Analysis:

1. Understand the Drivers: The art of successful trading is partly due to an

understanding of the current relationships between markets and the reasons that these
relationships exist. It is important to get a sense of causation, remembering that these
relationships can and do change over time.

2. Chart The Indexes: It is helpful for a trader to chart the important indexes for
each market on a longer time frame. This exercise can help a trader to determine
relationships between markets and whether a movement in one market is inverse or in
concert with the other.

3. Look For a Consensus In Other Markets:: We can gain a perspective of whether

or not the markets are reaching a turning point consensus by charting other
instruments on the same weekly or monthly basis. From there, we can take advantage
of the consensus to enter a trade in an instrument that will be affected by the turn. For
example, if the USD/JPY currency pair indicates an oversold position and that the
Bank of Japan (BOJ) could intervene to weaken the yen, Japanese exports could be
affected. However, a Japanese recovery is likely to be impaired without any
weakening of the yen.

4. Time the Trades: There is a much higher chance of a successful trade if one can
find turning points on the longer timeframes, then switch down to a shorter time
period to fine-tune an entry. The first trade can be at the exact Fibonacci level or
double bottom as indicated on the longer term chart, and if this fails then a second
opportunity will often occur on a pullback or test of the support level.

 UNIVERSAL SAMPLE SIZE:

Sources of data collection are done by analyzing information of foreign exchange

market.

 SOURCE OF DATA COLLECTIONS:

For made this project secondary data collection method are used. This stady based on
secondary data entire secondary data collected from internet, e-books, Wikipedia, news,
blogs, newspapers etc.

 METHOD OF DATA COLLECTIONS:

 An Analytical method is used for stady of foreign exchange market. Analysis done by
research and review of foreign exchange market.

 LITERATURE REVIEW:

INTRODUCTION:

Being the main force driving the global economic market, currency is no doubt an
essential element for a country. However, in order for all the countries with different
currencies to trade with one another, a system of exchange rate between their
currencies is needed; this system, is formally known as foreign exchange or currency
exchange. In the early days, the system of currency exchange is supported solely by the
gold amount held in the vault of a country. However, this system is no longer
appropriate now due to inflation and hence, the value of one’s currency nowadays is
determined through the market forces alone. In order to determine the value of a
currency’s exchange rate, two main types of system is used which is floating currency
and pegged currency.

MEANING AND CONCEPT:

The term Foreign exchange implies two things:

1. Foreign Currencies and

2. Exchange Rates
 Foreign exchange generally refers to foreign currency, e.g. for India it is dollar,
euro, yen, pound etc. &
 The main currency used in forex market is the us dollar.
 the other part of foreign exchange is exchange rate which is the price of one
currency in terms of the other currency.
 The forex market is the world's largest financial market in the world.
 Over $4 trillion dollars' worth of currency are traded each day. A amount of
money traded in a week is bigger than entire annual GDP of United States.

MEANING:

Forex is the international market for the free trade of currencies. Traders place orders
to buy one currency with another currency
According to Hartly Withers: “ Foreign exchange is the art and science of international
monetary exchange”
 HISTORY:

The foreign exchange market (fx or forex) as we know it today originated in 1973.
However, money has been around in one form or another since the time of Pharaohs.
The Babylonians are credited with the first use of paper bills and receipts, but Middle
Eastern moneychangers were the first currency traders who exchanged coins from one
culture to another. During the middle ages, the need for another form of currency
besides coins emerged as the method of choice. These paper bills represented
transferable third-party payments of funds, making foreign currency exchange trading
much easier for merchants and traders and causing these regional economies to flourish.
From the infantile stages of forex during the Middle Ages to WWI, the forex markets
were relatively stable and without much speculative activity. After WWI, the forex
markets became very volatile and speculative activity increased tenfold. Speculation in
the forex market was not looked on as favorable by most institutions and the public in
general. The Great Depression and the removal of the gold standard in 1931 created a
serious lull in forex market activity. From 1931 until 1973, the forex market went
through a series of changes.

1947 to 1977: Foreign exchange market in India: Historical Prospective: During 1947 to
1971, India exchange rate system followed the par value system. RBI fixed rupee’s
external par value at 4.15 grains of fine gold. 15.432grains of gold is equivalent to 1
gram of gold. RBI allowed the par value to fluctuate within the permitted margin of ±1
percent. With the breakdown of the Bretton Woods System in 1971 and the floatation
of major currencies, the rupee was linked with Pound-Sterling. Since Pound-Sterling was
fixed in terms of US dollar under the Smithsonian Agreement of 1971, the rupee also
remained stable against dollar.

SUMMARY:

 A foreign exchange transaction is an agreement between a buyer and seller that

a given amount of one currency is to be delivered at a specified rate for some
other currency.
 A foreign exchange rate is the price of a foreign currency. A foreign exchange
quotation or quote is statement of willingness to buy or sell at an announced
rate.
 Quotation can be classified either as European and American terms or as direct
and indirect quotes.
 A cross rate is an exchange rate between two currencies, calculated from their
common relationship with a third currency.

 CONCLUSION :
 The foreign exchange market is the biggest financial market in the world. The currency
derivatives market is highly leveraged. One has to be clued in the global development
trends in world trade as well as economic indicators of different countries. These
include GDP growth fiscal and monetary policies, inflow and outflow of the currency.
Local stock market performance and interest rates.

 BIBLIOGRAPHY:

1. Articles published on internet

www.slideshare.com/forexmarket
www.investopedia.com/foreignexchange
www.wikipwdia.com/foreignexchangemarket
www.thebalance.com/foreign-exchange
www.yourarticlelibrary.com

2. Book ( A foreign exchange primer)

Author: Shani shamah
Originally published: May 2003.

Student Signature Guide Signature

(Sameer Vasant Gawade) (Prof. Manjusha Kulkarni)