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Presented By:

Bodhi Chitta
 FOREIGN EXCHANGE MARKETS
 The market where the commodity traded is Currencies.
 Price of each currency is determined in term of other currencies.

What is an 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.67.954 per one USD

Major currencies of the World

 USD
 EURO
 YEN
 POUND STERLING
PARTICIPANTS IN THE FOREIGN
EXCHANGE MARKET
 All Scheduled Commercial Banks
 Reserve Bank of India (RBI).
 Corporate Treasuries.
 Public Sector/Government.
 Inter Bank Brokerage Houses.
 Resident Indians
 Non Residents
 Exchange Companies
 Money Changers
FACTORS INFLUENCING EXCHANGE RATES
As with any market, the forex market is driven by
supply and demand:
 If buyers exceed sellers, prices go up

 If sellers are less then the buyers, prices go down

TYPES OF EXCHANGE RATES
 Fixed exchange rates
 Floating exchange rates
 Direct exchange rates
 Indirect exchange rates
 Spot and forward

Fixed and Floating Exchange Rate

 Fixed exchange rate is the official rate set by the

monetary authorities of the Governance for one or more
currencies.
 Under floating exchange rate, the value of the currency
is decided by supply and demand factors
DIRECT AND INDIRECT EXCHANGE RATE

 Direct method - Under this, a given number of units

of local currency per unit of foreign currency is
quoted. They are designated as direct/certain rates
because the rupee cost of single foreign currency
unit can be obtained directly. Direct quotation is
also called home currency quotation.

 Indirect method – Under this, a given number of

units of foreign currency per unit of local currency is
quoted. Indirect quotation is also called foreign
currency quotation
SPOT AND FORWARD

The delivery under a foreign exchange transaction

can be settled in one of the following ways

 Ready or cash – To be settled on the same day

 Tom – To be settled on the day next to the date of
transaction
 Spot – To be settled on the second working day
from the date of contract
 Forward – To be settled at a date farther than the
spot date
FOREIGN EXCHANGE MARKET-WORLD VIEW
 Globally, operations in the foreign exchange market
started in a major way after the breakdown of the
Bretton Woods system in 1971, which also marked
the beginning of floating exchange rate regimes in
several countries.

 Over the years, the foreign exchange market has

emerged as the largest market in the world.

 The decade of the 1990s witnessed a perceptible policy

shift in many emerging markets towards reorientation of
their financial markets in terms of new products and
instruments, development of institutional and
market infrastructure and realignment of regulatory
structure consistent with the liberalised operational
framework.
FOREIGN EXCHANGE MARKET IN INDIA
 The changing contours were mirrored in a rapid
expansion of foreign exchange market in terms of
participants, transaction volumes, decline in
transaction costs and more efficient mechanisms of
risk transfer.

 The origin of the foreign exchange market in India could

be traced to the year 1978 when banks in India were
permitted to undertake intra-day trade in foreign
exchange.

 However, it was in the 1990s that the Indian foreign

exchange market witnessed far reaching changes along
with the shifts in the currency regime in India.
 STRUCTURE OF FOREX MARKET IN INDIA
Forex Market in India Management Act
R.B.I Central Govt.

Authorized Persons F.E.D.A.I.

Authorized Money Authorized Dealers

Changes

Full Fledged Restricted

F.E.D.A.I
 Foreign Exchange Dealer's Association of India
(FEDAI) was set up in 1958 as an Association of
banks dealing in foreign exchange in India (typically
called Authorized Dealers - ADs) as a self
regulatory body and is incorporated under Section
25 of The Companies Act, 1956.

 It's major activities include framing of rules

governing the conduct of inter-bank foreign
exchange business among banks and public and
liaison with RBI for reforms and development of
Forex market.
 FUNCTIONS OF F.E.D.A.I
 Guidelines and rules for the Forex business
 Training of bank personnel in the areas of Forex business
 Accreditation of brokers
 Advising / Assisting member banks in settling issues, matters
in their dealings
 Represent member banks on Govt, R.B.I. and other bodies
 Announcement of daily and periodical rates to member
 banks
 Prescribing margin for calculating exchange rates for various
merchant transactions
 Formulating code of conduct for dealers working in banks
exchange brokers for dealing between each other
FOREX MARKET - FEATURES
 The Market Has No Physical Presence.
 It Is The Largest Market On The Planet “ Earth ”.

 It Is Mostly Speculative In Nature.

 It Is A 24 – Hour Market.

 According to the Bank for International Settlements,

the preliminary global results from the 2016
Triennial Central Bank Survey of Foreign Exchange
and OTC Derivatives Markets Activity show that
trading in foreign exchange markets averaged $5.1
trillion per day in April 2016.
FOREX MARKET - FEATURES
 It Is A Market Connected By Advanced
Communication Channels Like S.W.I.F.T.
 It Is An Extremely Active And Also An Unpredictable
Market.
 The Market Is Truly Global As Trades Take Place
Across Continents.
 Most Deals Are On Spot Basis.

 Deals Are Screen Based.

 Market Is Volatile Because Of Floating Nature Of

Exchange Rates
SWIFT CODES
 USD United States Dollar

 INR Indian Rupee

 JPY Japanese Yen

 GBP Great Britain Pound

 CHF Swiss Franc

FOREIGN CURRENCY ACCOUNTS
Nostro Account
 Nostro account is an account maintained by a bank
in India with a bank abroad i.e.S.B.I. may maintain
an account with Citi-Bank New York or with HSBC
in London ,for $ operations and £ operations
respectively.

 While corresponding with the Citi or HSBC SBI

would refer its account with former two as Nostro
account, means our account with you. All foreign
exchange transactions are routed through Nostro
accounts.
FOREIGN CURRENCY ACCOUNTS
Vostro Account
 A foreign bank may open rupee account with an Indian
bank. while corresponding with the foreign bank
maintaining an account with it, the Indian bank would
refer to the account as Vostro account meaning your
account with us. Bank of Baharin and Kuwait may open
an account with State Bank of India and draw drafts on
the account.

 On presentation of drafts, the Indian bank would pay to

the debit of the foreign bank’s account with it. For
exchange control purposes such accounts are known as
“nonresident bank accounts”
WHO DECIDES THE FOREIGN EXCHANGE RATE

 A pegged, or fixed system, is one in which the exchange

rate is set and artificially maintained by the government.
The rate will be pegged to some other country's
currency, usually the U.S. dollar.

 The rate will not fluctuate from day to day.A government

has to work to keep their pegged rate stable. Their
national bank must hold large reserves of foreign
currency to mitigate changes in supply and demand.

 If a sudden demand for a currency were to drive up the

exchange rate, the national bank would have to release
enough of that currency into the market to meet the
demand. They can also buy up currency if low demand
is lowering exchange rates.
EXCHANGE RATES
Top 10 Jan 01, 2017 18:09

Indian Rupee 1.00 INR

 US Dollar 67.954800
 Euro 71.486971
 British Pound 83.837198
 Australian Dollar 48.954638
 Canadian Dollar 50.565446
 Singapore Dollar 46.903121
 Swiss Franc 66.663706
 Malaysian Ringgit 15.153261
 Japanese Yen 0.580232
 Chinese Yuan Renminbi 9.785131
Thank You
Submitted to :
Dr.Amrutha T Joshi
Prof.Agril.Economics
Dept Agril. Economics