JNTUK SMS SUBJECT:IFM

Presented by K nagakarthik 10021e0108

FOREIGN EXCHANGE MARKET

Foreign exchange is currency other than the local currency which is used in settling international transactions is also called foreign currency. It is a system or process of converting one currency into another currency.

DEFINITION According to kindleberger, foreign exchange market is a place where foreign moneys are bought and sold. The exporters sell the foreign currency and importers buy them.

CHARACTERISTICS OF FOREIGN EXCHANGE

MARKET

Electronic market: foreign exchange does not have a physical place. It is a market whereby trading in foreign currencies takes place through the electronically linked network of banks, foreign exchange brokers Geographical dispersal: the foreign market is vastly dispersed throughout the leading financial centers of the world such as London, New York, Paris, Zurich, Amsterdam, Tokyo, Hong Kong

Transfer of purchasing power: Foreign exchange aims at permitting the transfer of purchasing power denominated in one currency to another currency where one currency is traded for another. Intermediary: The market act as an intermediary between sellers and buyers of foreign exchange. Volume: A special feature of the foreign exchange market is that out of the total trading transactions that takes in the foreign exchange market around 95% takes from the cross border purchase and sale of assets.

Provision of credit: Foreign exchange markets provide credit through specialized instruments such as bankers acceptances and letters of credit. Minimizing risk: It helps exporters and importers in foreign trade to minimize their risks. This is done through the provision of hedging facilities.

CLASSIFICATION OF FOREIGN EXCHANGE

MARKET

The foreign exchange market is classified on the basis of the nature of transactions in 2 categories:

Spot market: The sales and purchases transactions settled with in two days Forward market: In this they deal for exchange after 90 days

FUNCTIONS OF FOREIGN EXCHANGE MARKET

The functions of foreign exchange market are as follows: Transfer function: the basic function of any foreign exchange market is to facilitate the conversion of one currency to another. Credit function: another function of foreign exchange market is to provide credit, both national and international, to promote foreign trade; obviously

Hedging function: a third function of foreign exchange market is to hedge foreign exchange risks. In free exchange, market when exchange rate, i.e., the price of one currency in terms of another currency, change may be gain or loss to the party concerned