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A trading account that allows an investor to review and test the features of a
trading platform before funding the account or placing trades. A demo
account is typically "funded" with simulated money, which allows the
investor to conduct fictitious trades in order to become familiar with the ins
and outs of the platform.
pip
Pip or "percentage in point," refers to the very last digit of a currency price.
? Whipsaw
A condition in a highly volatile market characterized by a sharp price
movement quickly followed by a sharp reversal
? Short Selling
To sell an instrument without actually owning it in hopes that the price will
decline so it can be bought back in the future at a profit.
market. The theory holds that the option of buying the domestic currency
with a foreign currency at a certain price X is equivalent to the option of
selling the foreign currency with the domestic currency at the same price X.
Therefore, the call option in the domestic currency becomes the put option
in the other, and vice versa
2
CARRY TRADE AND TRADING IN FOREX and Futures Trad
Trading foreign currency has advantages over equities and futures trading.
The global, around-the-clock nature of the Forex market gives traders the
unique advantage of reacting to news and worldwide developments as they
happen. Exchanging currencies in real time, on the largest trading market
in the world, allows Forex traders to manage their trades as global events
affecting the Forex market occur. Quite often, equities and futures traders
must wait until their markets open for business before they can see how
world events affect their investments and trading. With currency trading,
Forex traders frequently manage their investments without having to wait
for a market to open.
Trading 24 Hour 7 7
Activity Active Hours/Limited Hours/Limited
Market After Hours After Hours
In the Carry Trade, speculators buy high interest currencies and sell
currencies with low interest rates. These positions ensure that each trading
day rollover-interest will be posted to the trader's account. Thus the Carry
Trade has the potential to significantly enhance a trader's return.
3
Carry Trade Example
Below is a chart illustrating a typical example where the carry trade strategy
could have been best applied. The chart shows a steady increase of the
GBP/JPY pair in 2005 and 2006, spawned, among other things, by carry
traders going long to obtain the interest rate differential.
A carry trader who took advantage of the interest rate differential in the
GBP/JPY would have had the following profit, had he/she bought one
standard lot of the GBP/JPY at about the same time last year, and decided
to sell a year later.
7.25% 6.25%
NZD AUD
5.00% 5.25%
GBP USD
4.25% 3.50%
CAD EUR
Generally, traders seek to buy countries with high interest rates, and
seek to short currencies who offer low interest rates.
The carry trade works best under certain market conditions, and the
selection of the currency pair can make the difference between a
losing and a profitable trade. When selecting the currency pair,
traders want to observe two things. On the one hand, the trader wants
to make sure he is buying the currency that has the higher interest
rate and is selling the currency that has a lower interest rate in
comparison. On the other hand, the trader also wants to view the
health of the economy for the currency pair to ensure the market will
move to his/her favor. Essentially, the trader will be buying a
currency with a stronger economy and selling the currency with a
weaker economy. Some currency pairs that are usually selected to
apply the carry trade strategy are: GBP/JPY, GBP/CHF, AUD/JPY,
EUR/JPY, CAD/JPY, and USD/JPY.
Flexibility to trade
Forex market is characterized by high liquidity and high flexibility and
as such traders get
the freedom to make choices as per their wishes. They are not bound
by the whims of the
markets.
5
So, when you try to determine the best time to trade the forex market
this information
would prove very useful. Trades have almost always the same relative
frequency and till
the forex market remains open, the probability of finding a trade
whenever you look is
almost the same. This is all about volume of trade. It is determined by
the number of
markets that are open and the number of times each of these markets
overlap with each
other.
Keeping in mind the forex volume is extremely essential. It is generally
seen that the
volume of transactions remains high all through the day but when
does it peak? The
answer is when the Asian markets with Australia and New Zealand,
the European
markets and the US markets open simultaneously. And this is the
best time to trade the
forex market.
Market times
Let's have a look of the timings of some of these markets.
New York Market : 8 am – 4 pm EST
London Market : 2 am - 12 noon EST
Great Britain Market : 3 am – 11 am EST
Tokyo Market : 8 pm – 4 am EST
Australian Market : 7 pm – 3 pm EST
Just have a look at the above schedule carefully. What do you see?
Yes, there are tow
times when two of the major markets overlap during the trading
hours-between 2 am and
4 am EST (Asian/Europe) and between 8 am to 12 pm EST
(European/N. American).
This is the time you have to target to make profits, the best time to
trade the forex
markets.
6
Forex Tips and Tricks for Beginners
Stepping onto the forex arena for the first time might feel a bit daunting,
but keep these currency trading tips in mind and you'll soon find
yourself running with the pack.
· Casinos are for gamblers. The forex markets are for traders who
are interested in the investment, not the big win. Study and analysis
will prove a far better ally than long odds or luck.
· Practice makes perfect. Before you start throwing your money into
an account, practice with one or more of a variety of demo accounts.
This the most critical of all forex tips for the new trader. Get good at
analyzing and actual trading before you start plunking down our own
funds.
· Find a good broker. Do your homework and find a broker that fits
your trading style and philosophy and offers the features and services
you want.
· Don't buck the trend. Trends mean that more of the same is up
ahead. Keeping with a trend will help you continue to make a profit.
Generally, when the trend is up don't sell; when the trend is down,
don't buy.
· Check your emotions at the door. Forex is about methodical
analysis of the market trends, not about searching for the next hot
trade. The trader who lets his or her emotions take control is the one
who will watch profit drop and losses skyrocket.
· Overwhelmed traders make mistakes. If you find the data sitting
in front of you is too much to handle, stand up, walk out and take a
break. Then, back up a few steps and go to a place in the process
where you feel comfortable. Stay there for a while, and take baby-
steps when you're ready to move up.
· Guarantees are like unicorns and leprechauns – they don't exist
in this world. If someone tries to tell you that they have forex secrets,
like a system, trick or bot that guarantees a profit, you have only one
thing to do: Run away – far, far away.
· Patience really is a virtue. Of all currency trading strategies, this last
tip is one of the most important. Don't expect to make your money all
at once. Build it slowly over a large spread, by using consistent money
management, and you'll be able to weather almost any forex storm.
7
The History of FOREX Trading
The origin of FOREX trading traces its history to centuries ago. Different currencies and
the need to exchange them had existed since the Babylonians. They are credited with
the first use of paper notes and receipts. Speculation hardly ever happened, and
certainly the enormous speculative activity in the market today would have been
frowned upon.
In those days, the values of goods were expressed in terms of other goods (also called
as the Barter System). The obvious limitations of such a system encouraged establishing
more generally accepted mediums of exchange. It was important that a common base of
value could be established. In some economies, items such as teeth, feathers even
stones served this purpose, but soon various metals, in particular gold and silver,
established themselves as an accepted means of payment as well as a reliable storage of
value. Trade was carried among people of Africa, Asia etc through this system.
Coins were initially minted from the preferred metal and in stable political regimes, the
introduction of a paper form of governmental I.O.U. during the middle Ages also gained
acceptance. This type of I.O.U. was introduced more successfully through force than
through persuasion and is now the basis of today’s modern currencies.
Before the First World War, most Central banks supported their currencies with
convertibility to gold. However, the gold exchange standard had its weaknesses of
boom-bust patterns. As an economy strengthened, it would import a great deal from out
of the country until it ran down its gold reserves required to support its money; as a
result, the money supply would diminish, interest rates escalate and economic activity
slowed to the point of recession. Ultimately, prices of commodities had hit bottom,
appearing attractive to other nations, who would sprint into buying fury that injected the
economy with gold until it increased its money supply, drive down interest rates and
restore wealth into the economy.. However, for this type of gold exchange, there was
not necessarily a Centrals bank need for full coverage of the government's currency
reserves. This did not occur very often, however when a group mindset fostered this
disastrous notion of converting back to gold in mass, panic resulted in so-called "Run on
banks " The combination of a greater supply of paper money without the gold to cover
led to devastating inflation and resulting political instability. 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. These
changes greatly affected the global economies at the time and speculation in the FOREX
markets during these times was little.
In order to protect local national interests, increased foreign exchange controls were
introduced to prevent market forces from punishing monetary irresponsibility.
Near the end of World War II, the Bretton Woods agreement was reached on the
initiative of
8
the USA in July 1944. The conference held in Bretton Woods, New Hampshire
rejected John Maynard Keynes suggestion for a new world reserve currency in
favor of a system built on the US Dollar. International institutions such as the
IMF, The World Bank and GATT were created in the same period as the emerging
victors of WWII searched for a way to avoid the destabilizing monetary crises
leading to the war. The Bretton Woods agreement resulted in a system of fixed
exchange rates that reinstated The Gold Standard partly, fixing the USD at
$35.00 per ounce of Gold and fixing the other main currencies to the dollar,
initially intended to be on a permanent basis.
The last few decades have seen foreign exchange trading develop into the
world’s largest global market. Restrictions on capital flows have been removed in
most countries, leaving the market forces free to adjust foreign exchange rates
according to their perceived values.
In Asia, the lack of sustainability of fixed foreign exchange rates has gained new
relevance with the events in South East Asia in the latter part of 1997, where
currency after currency was devalued against the US dollar, leaving other fixed
exchange rates in particular in South America also looking very vulnerable.
9
While commercial companies have had to face a much more volatile currency environment
in recent years, investors and financial institutions have discovered a new playground. The
FOREX exchange market initially worked under the central banks and the governmental
institutions but later on it accommodated the various institutions, at present it also includes
the dot com booms and the World Wide Web. The size of the FOREX market now dwarfs any
other investment market. The foreign exchange market is the largest financial market in the
world. Approximately 1.9 trillion dollars are traded daily in the foreign exchange market. It
is estimated that more than USD 1,200 Billion are traded every day. It can be said easily
that FOREX market is a lucrative opportunity for the modern day savvy investor.
(MIB 2010-12)
10
Quiz
Q.1 Which Indian was honoured with the crystal award of World Economic Forum in 2011
for his work related to welfare of children?
Q.2 Who has taken charge as the fourth deputy governor general of RBI?
Q.4 Regulators in which country have okayed the agreement between Yahoo Japan and
Google Inc.), which enables the former to use Google technology to power its search services
in the country?
Q.6 Which product has just been given protection by the European Union?
Q.7 What has Apple Inc this week refused to reveal on the grounds that it would give
competitors an "unfair advantage"?
a)Arbroathsmokies
b)Cornish pasties
c)Danish pastries
d)Cheddar cheese
Q.8 Which business is to make a total payout of £500m to 300,000 customers after admitting
a promotional error?
a)Thomas Cook
b)Rentokil
c)Burger King
d)Halifax Bank 11
Q.9Name the multinational that has agreed to buy Turkish firm MeyIcki for £1.3 billion
a)Diageo
b)Accenture
c)Avensys
d)Aviva
Contributed By
Sunita Arora
MIB 1st year
12
Forex Market In India
Introduction
Forex (Foreign Exchange) is the international financial market used for trade of
world currencies. It is a place where various currencies are traded. Foreign
exchange or forex means a market place where one currency is traded for
another. The major players of this market are banks, financial institution, large
companies, financial brokers and individuals. In the recent years forex trading
has gained tremendous popularity. These are unique by its large volume,
extreme liquidity, 24 hour trading availability and various types of options
available.
Indian forex market is small when compared with other developed countries.
However, with the multinationals coming up and new government policies, the
path of expansion of Forex in India is picking up.
India's share in world forex market has shown growth of 0.9% in 2010 and is
expected to grow further1. It is among the fastest growing Forex market in the
world. It has been observed that the recent growth rates of forex markets in
developed countries are much lowercompared with developing countries.
Countries like UK and US in the recent years have shown the lowest change in
contribution of foreign exchange. The trends in Forex Trading like derivative
markets, options, swapping, and hedging are picking up in India.
13
1
As per the latest data available at nriinvestindia.com
other requirements. As capital inflows during 2007-08 were far in excess of the
normal absorptive capacity of the economy, there was substantial accretion to
foreign exchange reserves by US $ 110.5 billion. The foreign exchange reserves
declined by US $ 23.4 billion from US $ 309.7 billion as at end-March 2008 to
US $ 286.3 billion by end-September 2008 largely reflecting valuation effects.
Excluding valuation effects, the decline was US $ 2.5 billion. Between October
2008 and January 16, 2009 foreign exchange reserves declined by US $ 34.1
billion to US $ 252.2 billion, including valuation effects. However, India’s
current level of foreign exchange reserves remains comfortable.
The factors which influence the forex market in India are government policies
and rules, tax structure, inflation rates, RBI rates and interest rates, foreign
trade policies, World Bank interest rates and economic growth and health.
There has always been a big debate about whether forex trading is legal or illegal in India. It is very
much legal to trade FX in India if one is doing it through the NSE. Earlier, there were markets for non-
deliverable forward trading offshore with the RBI monitoring domestic forward trading in currency.
But currency futures were banned until the RBI decided to go ahead with the idea after Indian rupee
futures began trading on the Dubai Gold and Commodities Exchange (DGCX). Now forex traders are
easily trading US dollar against the rupee online.
The RBI green signal led to the start of the first currency futures trading at the
15
National Stock Exchange (NSE) in India launched by the then Finance Minister, P Chidambaram. He
spoke about developing the bond and derivatives market with interest rate futures in and secure
credit derivatives market. As it got launched on August 29, 2008, interest was up and running with
nearly 11 banks and 300 trading members registering and transacting nearly 70,000 contracts in a
single day, with great fluctuations in the Indian forex rates. East India Securities conducted the first
trade and among the banks, HDFC was the first to transact business. Of the total business done on
that day, transactions by banks accounted for 40% of the total trade.
The Reserve bank of India (RBI), satisfied with the proceedings went on to allow currency futures
trading at the selected exchanges across India. Later, a plan was drawn up for setting up a futures
market for currency with the help of RBI and the capital market monitoring organization, Securities
and Exchange Board of India (SEBI).
It was the NSE that first allowed trading in futures although applications were sent in by the Bombay
Stock Exchange (BSE) & MCX or the Multi Commodity Exchange. Primarily, the step to open up
futures trading in currency was taken to provide companies with increasing flexibility and infuse
more liquidity into the market.
RBI has very severe laws if one trades INR against any other currency without
prior permission from RBI. A trader needs to have a forex trading lisence from
RBI.
RBI regulations state that remittance in any form towards overseas foreign
exchange trading through electronic/internet trading portals is not permitted
under the Foreign Exchange Management Act (FEMA), 1999. It also states that
the
16
existing regulations under FEMA, 1999 do not permit Indian residents to trade in
foreign exchange in domestic / overseas markets.
However, Indian residents are permitted to trade in currency futures and options
contracts, traded on the stock exchanges recognized by the Securities and
Exchange Board of India (SEBI) in India, subject to the conditions specified by RBI
from time to time.
To sumup
The emerging growth of forex trades in India has proved the upcoming power and
will India will soon be seen asan investment hub. The scope of forex market is
very huge in India as it is in its initial stage. New developments are in row and
very soon Indian market would emerge as a high potential foreign exchange
market place.
17
CEO CORNER
Bart Becht
University of Chicago
MBA, Business
1980 – 1982
MBA, Business
9
1977 – 1980
MBA, Business
1977 – 1980
53 4,510,000 GBp
As of Fiscal Year 2009
Bart Becht serves as the Chief Executive Officer of Reckitt Benckiser Group PLC since
December 1999. Mr. Becht served as the Chief Executive Officer of Reckitt Benckiser
Pakistan Limited. He served as Chief Executive Officer of Benckiser N.V. since September
1997 and as a Member of its Management Board since August 1997 He joined Benckiser
N.V. in 1988 and served as General Manager in Canada, the UK, France and Italy. He served
as the Chief Executive of Benckiser Detergents. Mr. Becht has been an Executive Director of
Reckitt Benckiser Group PLC since December 1999. He served as a Director of Prudential PLC
from May 2002 to August 31, 2004. He was a Director of Grocery Manufacturers
Association.
18
Becht, who is married and has three children, gives many of the shares he is awarded to a
charitable trust that donates primarily to humanitarian causes. A frequent flyer as a result of
Reckitt's global business, his home is a mansion overlooking the Sunningdale golf course in
Berkshire.
He's acquired a reputation of being obsessed with cleaning and of course, running a tight
ship at Reckitt Benckiser. But CEO, Bart Becht says he doesn't have a passion for
cleaning, but what he does have is a keen interest in talking to consumers and picking up
tips that help him in his business .
In markets like India, Reckitt has introduced power brands like Veet, Easy Off Bang
and Air Wick in the last five years. Why has the company taken so long to introduce
these brands?
The timing depends on how ready the consumer is and what it takes to bring products to
them. Building categories requires consumer insights like how people use the products, what
their habits are and how it fits into their routine. We cannot say that just because we have a
brand in North America, we want to introduce that in India. It's got to fit in the routine.
So with Vanish stain remover, the product performance needs to be slightly different because
in some geographies the stains are very tough. For instance turmeric is used in India and it's
difficult to remove. The same is the case with air fresheners. Sandalwood would not be
popular in the US but it is accepted in India.
Rivals like P&G and HUL are talking about acquiring the next billion consumers from
emerging markets. Which spectrum of consumers are you looking at?
Our products in general start on top of the pyramid especially in developing markets. Even in
developed markets we are geared towards higher income groups. That's logical because we
are creating new categories and they tend to be more expensive because they offer better
solutions.
In India, we started with urban and have gradually moved into rural markets. Harpic is a
classic example, where we started with very few outlets but today we have a massive amount
of distribution even outside urban areas. It's true even for markets like Brazil where with
brands like Vanish we are gradually acquiring rural consumers and moving down the
pyramid. But we are not starting at the bottom, we start at the top.
Compiled by
Anuratn
TAXES
SUBSIDIES
FISCAL DEFICIT
* Fiscal deficit seen at 5.1 percent of GDP in 2010-11
* Fiscal deficit seen at 4.6 percent of GDP in 2011-12
* Fiscal deficit seen at 3.5 percent of GDP in 2013-14
20
Continued...
SPENDING
REVENUE
DISINVESTMENT
BORROWING
* Net market borrowing for 2011-12 seen at 3.43 trillion rupees, down from
3.45 trillion rupees in 2010-11
* Gross market borrowing for 2011-12 seen at 4.17 trillion rupees
* Revised gross market borrowing for 2010-11 at 4.47 trillion rupees
POLICY REFORMS
SECTOR SPENDING
* To allocate more than 1.64 trillion rupees to defence sector in 2011-12
* Corpus of rural infrastructure development fund raised to 180 billion rupees in 2011-12
* To provide 201.5 billion rupees capital infusion in state-run banks in 2011-12
* To allocate 520.5 billion rupees for the education sector. Rs.21,000 crore for Sarva
Shiksha Abhiyan.
* To raise health sector allocation to 267.6 billion rupees
* Rs.500 crore more for national skill development fund.
* Rs.54 crore each for AMU (Aligarh Muslim University) centres at Murshidabad and
Mallapuram.
* Rs.58,000 crore for Bharat Nirman; increase of Rs.10,000 crore.
* Mahatma Gandhi National Rural Employment Guarantee Scheme wage rates linked to
consumer price index; will rise from existing Rs.100 per day.
* Increased outlay on social sector schemes.
* Infrastructure critical for development; 23 percent higher allocation in 2011-12.
AGRICULTURE
* Removal of supply bottlenecks in the food sector will be in focus in 2011-12
* Agriculture growth key to development: Green Revolution waiting to happen in eastern
region.
* To raise target of credit flow to agriculture sector to 4.75 trillion rupees
* Gives 3 percent interest subsidy to farmers in 2011-12
* Cold storage chains to be given infrastructure status
* Capitalisation of National Bank for Agriculture and Rural Development (NABARD) of 30
billion rupees in a phased manner
* To provide 3 billion rupees for 60,000 hectares under palm oil plantation
* Actively considering new fertiliser policy for urea
* Food storage capacity to be augmented - 15 more mega food parks to be set up in 2011-
12; of 30 sanctioned in previous fiscal, 15 set up.
* Comprehensive policy on further developing PPP (public-private-partnership) model.
* Farmers need access to affordable credit.
* Moving to improve nutritional security.
* Necessary to accelerate production of fodder.
ON GOVERNANCE
* "Certain events in the past few months may have created an impression of drift in
governance and a gap in public accountability ... such an impression is misplaced."
* Corruption is a problem, must fight it collectively
MORE
*Govt to move towards direct transfer of cash subsidy for kerosene, LPG and fertilisers.
*Financial Sector Legislative Reforms Commission, to be headed by former Supreme
Court judge B Srikrishna, to complete its work in 24 months; to overhaul financial
regulations.
* Five-fold strategy against black money; 13 new double taxation avoidance
agreements; foreign tax division of CTBT strengthened; strength of Enforcement
Directorate increased three-fold.
* Bill to be introduced to review Indian Stamp Act.
* New coins carrying new rupee symbol to be issued.
* Anganwadi workers salary raised from Rs.1,500 to Rs.3,000.
* Mortgage risk guarantee fund to be created for economically weaker sections.
* Housing loan limit for priority sector lending raised to Rs.25 lakh.
20
ANSWERS
Ans: A. R. Rehman
Ans: AnandSinha
Ans: U K Sinha
Ans: FathimathDhiyanaSaeed
Ans: Japan
Ans: Diageo
20
NEWS
Credit Suisse Analysts Say Nasdaq May Bid for TMX, CBOE Holdings
Nasdaq OMX Group Inc. may bid for TMX Group Inc. to block London Stock Exchange Group
Plc’s agreement to buy the Toronto bourse, or pursue a deal with CBOE Holdings Inc.,
according to Credit Suisse Group AG.
Volvo to Invest Up to $11 Billion in Next Five Years to Tap Luxury Demand
Volvo Cars, the Swedish automaker acquired by Zhejiang Geely Holding Group Co., plans to
invest as much as $11 billion worldwide over the next five years to tap rising demand in
markets including China.
Econ survey sees FY12 GDP growth at 9 pct
The Economic Survy by India's finance ministry on Friday gave a series of economic forecasts
and recommendations, ahead of the annual budget that Finance Minister Pranab Mukherjee
will present on Feb. 28.
Budget may lay ground for FDI in multi-brand retail
The government is likely to indicate a road map for allowing foreign direct investment (FDI)
in multi-brand retail in the Union Budget 2011 , which according to two policy-makers, will
tame surging food prices and help farmers realise better prices for their produce.
Pfizer Teams With India Brewmaster in Return to $14 Billion Insulin Market
Biocon Ltd. founder KiranMazumdar- Shaw learned the intricacies of enzymes while
studying how to make beer. Now Pfizer Inc., the world’s largest drugmaker, is tapping that
knowledge to revive its insulin business.
21
About 20 bidders circle AstraZeneca unit
About 20 bidders are readying offers for all or parts of Astra Tech, the dental and medical
devices unit that AstraZeneca Plc (AZN.L) hopes could fetch $2 billion, people familiar with
the matter said.
Egypt Sells $1.1 Billion Bills, First Sale Since Mubarak Ouster
Egypt sold 6.5 billion Egyptian pounds ($1.1 billion) of treasury bills in the North African
country’s first auction after the resignation of Hosni Mubarak. The yields held around the
highest levels in two years.
Retail Sales Probably Rose in January as Promotions Enticed U.S. Shoppers
Retail sales probably climbed in January as shoppers took advantage of post-holiday
promotions before winter storms covered much of the U.S., a sign the economy is on the
mend, economists said before a report this week.
Treasury Yields Reach Highs on Better Economic Growth, U.S. Debt Auctions
Treasuries fell, with 10-year notes touching the highest yield since April, as the U.S. sold $72
billion of debt amid data showing the economy is gaining steam.
22
China denies rumors of losing $450 bn in Fannie, Freddie debt
China's foreign exchange regulator has refuted media reports that the country may lose up
to $ 450 billion by holding bonds of Fannie Mae and Freddie Mac, the US mortgage giants,
which according to speculation may be phased out by the US government.
Indian power cos may shift focus to African continent for coal
After scouting for coal in Indonesia and Australia, Indian power companies may now shift
their focus to countries like South Africa and Botswana for sourcing the raw material needed
to feed their thermal projects.
SAIL FPO in March, investment banks asked to give undertakings
The government today said state-run SAIL''s proposed Rs 8,000-crore follow-on public offer,
which has got delayed due to issues with merchant bankers, will now hit the capital markets
in March.
Ankit Singh
(MIB 2010-12)
23