MCP Forex - Chintan (MBA05002028)

K.L.E.
SOCIETYS
INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH VIDYANAGAR, HUBLI 580031
(Recognized by AICTE, New Delhi and Affiliated to Karnataka University, Dharwad)
A Project Report on
FOREX: Detailed Study, Risks, Risk Management & its Perception of Investors in Hubli City
Undertaken at
Altos Trade, Club Road, Hubli.

Submitted in partial fulfillment of the requirement of award of Masters Degree in Business Administration of Karnataka University, Dharwad Submitted By Mr. Chintan. P. Netrakar Seat No. MBA05002028
Institute Guide Prof. Mona Agarwal Faculty Finance, KLESS IMSR HUBLI.
Company Guide Mr. Ashok Sai Team Manager, Altos Trade, Hubli.
KLE Societys Institute of Management Studies and Research
K.L.E.SOCIETYS
INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH VIDYANAGAR, HUBLI 580031
(Recognized by AICTE, New Delhi and Affiliated to Karnataka University, Dharwad)
Certificate
This is to certify that Mr. Chintan. P. Netrakar of MBA 4th Semester Exam No. MBA05002028 has successfully completed his project work for a period of four months from 04th December 2006 to 16th April 2007.
Institute Guide Prof. Mona Agarwal Faculty Finance, KLESS IMSR HUBLI.
Director Dr. M. M Bagali Director, KLES IMSR HUBLI.
Declaration
I, Chintan. P. Netrakar here by declare that the project title FOREX: Detailed Study, Risks, Risk Management & its Perception of Investors in Hubli City submitted in partial fulfillment of the requirement for the award, the degree of Master Of Business Administration by Karnataka University, Dharwad is my original work and is not submitted elsewhere for the award of my any degree or diploma.
Date: 23-05-2007 Place: Hubli
Chintan. P. N M.B.A 4th Sem
ACKNOWLEDGEMENT
The Satisfaction that accompany the successful completion of any task would be incomplete without mentioning of the people who made it possible. So with gratitude I acknowledge who served as a Beacon Light and crowned my efforts with success.
I express my profound sense of gratitude to my project co-ordinator and external guide for my project, Mr. Ashok Sai, Team Manager, Altos trade Bangalore for giving me this opportunity to take up this study and his support, encouragement and valuable timely advice.
My special thanks to my Institute Director Dr. M. M. Bagali who was kind enough in providing all the facilities and helped me in completing my project.
I extend my sincere thanks to my internal guide Prof. Mona Agarwal who guided me throughout the project.
I am greatly thankful to Karnatak University, Dharwad for giving practical knowledge about the industrial sector by including summer internship program for two months as a part of curriculum in the MBA course.
I would fail in my duty if I cant remember the encouragement given by my parents in my endeavor. I just say, I love my parents
Contents
Sl. No. Particulars 1. 2. 3. 4. 5. 6. 7. 8. Executive Summary Forex in India Altos Profile

Forex
Page No. 1 4 8 13 58 61 69 71
Questionnaire Analysis & Findings Recommendations Conclusion
Introduction The present study and exercise includes the study of FOREX, the risks involved and managing risks. This serves as guidelines to the investors while investing in FOREX. It also includes a survey that reveals the perception of the investors regarding FOREX trading. Topic:
FOREX: Detailed Study, Risks, Risk Management & its Perception of Investors
in Hubli City. Need For the Study: FOREX plays a very important role in the International Market as India has opened up its economy. Its role in the international trade effects a lot to the Indian economy as there is fluctuations in the exchange rates. My study on FOREX is to have a thorough knowledge on its trading, the risks that are involved in its trading and also the tools that are used to hedge these risks. The study also includes the research for the scope of FOREX trade in HUBLI city. Objectives:
1. To have a detailed study of FOREX trade. 2. To study the Risks involved in it. 3. To know the tools used to hedge the risks. 4. To know the perception of investors towards FOREX. Data Collection Primary and Secondary data collection.
Mode of Data Collection Primary data: Collection of data from the investors in various investments through questionnaire. Secondary data: Secondary data will be collected from the various books on FOREX, Journals, Magazines and Internet; Manuals and Magazines provided by the organization. Period of Study The study is been conducted for 4 months i.e. from 4th December 2007 to 16th April 2007.
FOREX in INDIA
9
Market players in forex became active in the seventies, consequent upon the collapse of Bretton Woods Agreement. However, India was somewhat insulated since stringent exchange controls prevailed and banks were required to undertake only cover operations and maintain a square or near square position at all times. In 1978, the RBI allowed banks to undertake intra-day trading in foreign exchange and as a consequence, the stipulation of maintaining `square' or `near square' position was to be complied with only at the close of business hours each day. This perhaps marks the beginning of forex market in India. As opportunities to make profits began to emerge, the major banks started quoting two-way prices against the rupee as well as in cross currencies and gradually, trading volumes began to increase. During the period, 1975-92 the exchange rate regime in India was characterised by daily announcement by the RBI of its buying and selling rates to Authorised Dealers (ADs) for merchant transactions. Given the then prevalent RBIs obligation to buy and sell unlimited amounts of the intervention currency arising from the banks merchant purchases, its quotes for buying/selling effectively became the fulcrum around which the market was operated. The RBI performed a market-clearing role on a day-to-day basis, which naturally introduced some variability in the size of reserves. Incidentally, certain categories of current and capital account transactions on behalf of the Government were directly routed through the reserves account. The 1990s marked significant changes in the currency regime in India and in the development of the foreign exchange market. The exchange rate of the rupee, which was pegged to an undisclosed basket of currencies, was partially floated in March, 1992 and fully in March, 1993. The unification of the exchange rate was instrumental in developing a market-determined exchange rate of the rupee, based on demand and supply in the forex market. It was also an important step in the progress towards current account convertibility, which was achieved in August, 1994 when India accepted obligations under Article VIII of IMFs Articles of Agreement. A further impetus was provided in the form of the appointment of an Expert Group on Foreign Exchange Markets in India which submitted its report on June 27, 1995. The Sodhani Committee, as it has been popularly known, made recommendations which had far reaching consequences for the development in general, and deepening & widening, in particular, of the Indian forex market. Almost a decade has passed since then, and it was felt that it would be appropriate to take stock of the developments which have occurred, and to chart out the path for the future.
10
Accordingly, as a part of the continuing efforts aimed at liberalising and developing the Forex market in India, Governor appointed an Internal Technical Group on Forex Markets to undertake a comprehensive review of measures initiated by Reserve Bank so far and identify areas for further liberalization /relaxation of restrictions along with a mediumterm framework in relation to issues regarding capital account liberalisation. The members of the Group were drawn from DEIO, IDMD, FED, DBOD and DEAP The Indian Forex market is made up of banks authorised to deal in foreign exchange, known as Authorised Dealers (ADs), foreign exchange brokers, money changers and customers - both resident and non-resident, who are exposed to currency risk. It is predominantly a transaction-based market with the existence of underlying forex exposure generally being an essential requirement for market users. The Indian forex market has grown manifold over the last several years. Average daily total turnover has increased from US$3.67 billion in 1996-97 to US$9.71 billion in 2003-04. The normal spot market quote has a spread of 0.50 to 1 paise while swap quotes are available at 1 to 2 paise spread. The derivatives market activity has shown tremendous growth as well, especially after the MIFOR (Mumbai Inter-bank Forward Offered Rate) swap curve evolved in 2000. Many policy initiatives have been taken to develop the forex market. ADs have been permitted to have larger open position and aggregate gap limits, linked to their capital. They have been given permission to borrow overseas up to 25 per cent of their Tier-I capital and invest up to limits approved by their respective Boards. Cash reserve requirements have been exempted on inter-bank borrowings. Exporters and importers are, in general, permitted to freely cancel and rebook forward contracts booked in respect of their foreign currency exposures, except in respect of forward contracts booked to cover import and non-trade payments falling due beyond one year. They have also been permitted to book forward contracts on the basis of past performance (without production of underlying documents evidencing transactions at the time of booking the contract). Corporates have been permitted increasing access to foreign currency funds. General permission has been given to ADs for approving External Commercial Borrowings of their customers up to a limit of US $ 500 million; appropriate
11
restrictions have been placed on the end-use of such funds. While exchange earners in select categories such as Export Oriented Units (EOU) are permitted to retain 100 per cent of their export earnings, others are permitted to retain 50 per cent of their forex receipts in EEFC accounts. Residents may also enter into forward contracts with ADs in respect of transactions denominated in foreign currency but settled in Indian rupee. They can hedge the exchange risk arising out of overseas direct investments in equity and loan. Residents engaged in export/import trade, are permitted to hedge the attendant commodity price risk in international commodity exchanges/ markets using exchange traded as well as OTC contracts. Non-residents are permitted to hedge the currency risk arising on account of their investments in India. However, once cancelled, these contracts cannot be rebooked for the same exposure.
12
13
ALTOS ADVISORY SERVICES

Altos Company started in 1999 and became Public Ltd., in Feb 2000. Altos HO is in Chennai. The CEO of Altos is Mr. Premanand. And the Vice President is Mr. Manoj Keshvan. 12 commodities are traded in Altos and 6 Currency. In all over India there are 18 branches. Hubli branch was started in the year 2005. This years annual turnover is Rs. 1,100 Cr Pa.
COMMODITIES IN ALTOS
Silver, Copper, Palladium, Soybean, Wheat, Rice, Corn, Oods, Lumbar, Fresh pork bellies, Cotton coffee, Orange juice
CURRENCY
Swiss France, Euro, Yen, US Dollar, Pound sterling, Australia Dollar Actually, its the entire world of commodities. Because thats where the opportunity is today. Riding on astronomical growth figures of 900 per cent annually, the Indian commodity trading market has already overtaken the Indian equity market. Trading in such a booming market requires a player whose expertise, experience and successful track record will make the key difference to the investors. Altos is Indias first and only company focusing exclusively on commodity futures trading, in the Indian and global markets since its inception in 1999. The company has experience with the volumes and complexities of the global commodity markets giving it considerable expertise in this challenging area. This, in turn, enables Altos to help investors like you trade profitably in the nascent Indian commodity futures markets
ACCOUNT OPENING
The client has to open an account with Altos Advisory Services Ltd. by way of Cheque/Cash/ Demand Draft and has to sign the Risk Disclosure Statement and Agreement with Altos Advisory Services Ltd. Withdrawals will be honoured by means of A/C Payee Cheques only. (Address Proof, ID Proof and two photographs of the client is mandatory
14
for opening an account) The Client has to fully understand the risks associated with the trade before he enters into the trade.
BANKING
For efficient clearing, settlement and guarantee system, Altos has an automated clearing and settlement system with HDFC Bank as its Settlement & Clearing Bank for maintenance of Clients Margin
MARGIN REQUIREMENT:

Margin requirement is as per exchange norms Additional Variation Margin will be imposed by the exchange/member based on the volatility of the market
COMMODITIES TRADED
All commodities are traded on the exchange. The client will be provided with a daily trading statement via e-mail to apprise him of the status of his accounts after the previous days trading. Altos will then send original copies of the account statements by courier to the clients every week. Any position entered by the trader can be intimated to the respective client as and when the clients requires him to do so, according to the client's own convenience through the telephone/fax. There is no lock-in period for the margin.
MODUS OPERANDI OF TRADING

Altos provides trading facility through V-Sat Terminal connected to the Exchange. Trading at Altos is done in an Order Driven Market. Altos set up the trading limit to its clients. The traders place orders (buy or sell) using the client code assigned to the client and the orders are placed online and are thrown to the Exchange. Trading is done on anonymous basis without disclosing the counter party. This provides transparency to the trading system.
GENERATION OF STATEMENTS
15
Altos maintains a separate account for each and every client. The back office software automatically calculates Initial Margins and M2M (Mark to Market) margins of the member on a daily basis. The information regarding pay-ins and pay-outs arising in calculations of positions of members is transferred at the end of trading hours electronically and Contract notes, Mark to Market Billing, Margin Call (if any) showing the margin amount, commission charges, number of lots traded, number of open and liquidated positions are issued to the clients. The client can also take delivery of underlying commodity that is backed by a Warehouse Receipt System. Every contract opens and expires on the dates as per the circulars issued by the exchange. No fresh positions building will be allowed during the delivery period of the current contract month. The buyer or seller gives delivery intention and pays delivery margin. The exchange after matching the buyers and sellers notifies them about the delivery details. The seller can tender warehouse receipt for settlement and warehouse receipt will be accepted for settlement at the closing price of the previous day. The warehouse receipt will be collected from the seller by the exchange and passed on to the buyer. The buyer then issues the warehouse receipt to the warehouse and takes delivery of the goods. CHARGES APPLICABLE

Warehouse Charges / Storage Charges Insurance charges Delivery charges Sales tax Penalty charges (upon failure to deliver)
The seller tenders the warehouse receipt to the exchange during the delivery period of the current contract month in case he wishes to give delivery. The exchange notifies the buyer about delivery and the warehouse receipt is issued in favor of the buyer, which is transferable. On producing this receipt the buyer can take delivery of the commodity from the warehouse. The buyer has to bear the warehouse charges, insurance charges from the day on which he receives the notification from the exchange. Warehouse charges differ from one warehouse to another and also from one location to another. Warehouse accepts stocks only for specified period and after which if the buyer or seller wishes to keep the stocks in the warehouse, then he has to revalidate the warehouse receipt.
16
17
FOREX HISTORY
18
Forex dates back to ancient times, when traders first began exchanging coins from different countries and groups. However, the foreign exchange industry itself is the newest of the financial markets. In the last hundred years, the foreign exchange market has undergone some dramatic transformations. In 1944, the postwar foreign exchange system was established as a result of a multinational conference held at Bretton Woods, New Hampshire. That system remained intact until the early 1970s. At this conference, representatives from 45 nations met together to discuss the future exchange system. The conference resulted in the formation of the International Monetary Fund (IMF). It also produced an agreement that fixed currencies in an exchange-rate system would tolerate one percent currency fluctuations to gold values, or to the U.S. Dollar, which was established previously as the gold standard. The system of connecting the currencys value to gold or the U.S. Dollar was called pegging. In 1967, a Chicago bank refused a college professor by the name of Milton Friedman a loan in pound sterling because he had intended to use the funds to short the British currency. Friedman, who had perceived sterling to be priced too high against the dollar, wanted to sell the currency, then later buy it back to repay the bank after the currency declined, thus pocketing a quick profit. The bank's refusal to grant the loan was due to the Bretton Woods Agreement, established twenty years earlier, which fixed national currencies against the dollar, and set the dollar at a rate of $35 per ounce of gold. The history of the FOREX Market as it exists today begins before 1971 when the FOREX market departed from The Bretton Woods Accord to reflect a radical change in Universal fixed exchange rates. After World War Two, the Bretton Woods Accord was introduced to the FOREX market to stabilize the devastated world economy. The Agreement was finally abandoned in 1971 and the US dollar would no longer be convertible into gold. After the Bretton Woods Accord came the Smithsonian agreement in December of 1971. This agreement was similar to the Bretton Woods Accord but allowed for greater fluctuation band for the currencies. In 1972, the European community tried to move away
19
from their dependency on the dollar. West Germany, France, Italy, the Netherlands, Belgium and Luxemburg established the European Joint Float. This agreement was similar to the Bretton Woods Accord, but allowed a greater range of fluctuation in the currency values. Both agreements made mistakes similar to the Bretton Woods Accord and, by 1973, collapsed. The collapse of the Smithsonian agreement and the European Joint Float in 1973 signified the official switch to the free-floating system. This occurred by default as there were no new agreements to take their place. Governments were now free to peg their currencies, semi-peg or allow them to freely float. In 1978, the free-floating system was officially mandated. Europe tried, in a final effort to gain independence from the dollar, by creating the European Monetary System in July of 1978. This, like all of the earlier agreements, failed in 1993.
Important milestones in the history of Forex The Gold Standard

Money was invented when barter was no longer an adequate means of trade, seeing that actual goods could quickly lose value, were subject to value discrepancies, and could many times not easily be divided (Morris, 4). Money, on the other hand, could function as a medium of exchange, a unit of accounting, and a store of value (Ethier, 402). The original form of money was typically something that had value in itself, such a precious metal. The metal itself, usually gold or silver (Eichengreen, 9), was valuable, both because of its scarcity and its inherent usefulness. By the nineteenth century, both coins and paper money were in popular use. Under the famous "Gold Standard," currencies were not directly valued in terms of each other. Instead, each currency had a certain, the rate at which the currency could be exchanged for gold. This in turn produced an effective exchange rate between any two currencies. In 1900, for example, the mint parity for the U.S. dollar was $20.67, while that of the British pound was 3 pounds, 17 shillings, 10 pence. To exchange U.S. dollars for British
20
pounds, one would divide $20.67 by 3.17.10, which produces $4.86 per pound after adjusting for the fact that U.S. gold coins had a somewhat greater gold content than did British coins (Aliber, 34). Paper money could then be used in place of the precious metal. A citizen could carry paper money while the central bank would, in which more money left the country than came in, there would be less U.S. dollars in circulation. Because central banks have large control over the interest rates, the rates at which banks borrow and lend money, they soon found that they did not have to passively wait for gold flows to be restored. In a trade deficit scenario, with gold supplies leaving the country, a central bank could raise interest rates which would make domestic savings more attractive.
Floating Exchanges Systems

Under a floating exchange system, on the other hand, currencies are not valued in terms of gold - they are valued in terms of other currencies. In the early 20th century, two world wars brought about social upheavals, rapid inflation, and the destruction of the setting which made the gold standard operable. Between the wars, many countries elected to temporarily abandon the gold standard and opt for floating exchange systems until their economies returned to the point at which in light of the fact that, if a currency drifted too far outside its band and could not be contained by central bank intervention, the country was allowed to adjust its peg by setting a new exchange price. There were three aspects of the system that were in conflict: constant exchange rates, autonomous domestic economic policies, and increasing international capital mobility. The existence of Bretton Woods did not stop states from using domestic economic policy (manipulating interest rates, for example, as under the gold standard) for domestic reasons, whatever their long-term effects on the exchange rate. Capital mobility simply makes the effects of domestic economic policies on the exchange rate happen sooner than they otherwise would. With the instability brought about by the Vietnam War, central banks finally began to convert their dollars to gold. To halt the loss of gold, in 1971 Nixon "closed the gold
21
window" by refusing to provide gold to foreign dollar holders (Eichengreen, 133). In 1974 the Bretton Woods System of adjustable pegs was officially abandoned and the Jamaica Agreement basically allowed the presence of any exchange system a country chooses (Aliber, 52).
Exchange Systems Today

There are several exchange systems a country can currently choose from. A free floating exchange system, as mentioned earlier, would simply allow the market to determine the price of a currency. Trade surpluses and deficits, domestic investments versus foreign investments, and domestic taxation policies, to name a few factors affecting the exchange rate, would all be allowed to occur whatever their effects on the currency. A pegged exchange rate, on the other hand, would function exactly as the gold standard did a century beforehand, except that a country would its currency to the price of another currency, usually the U.S. dollar. If there is a balance of payments deficit, for example the central bank will buy the appropriate amount of the domestic currency in exchange for its foreign currency reserves, thereby returning the price of the currency to its peg but at the same time depleting the size of its reserves. Some countries practice by, while remaining officially free-floating, sometimes intervening in their currency rates in order to suite domestic interests - increasing (revaluing) their exchange rate before an oil shipment, for example (Luca, 17). Other countries, for example Brazil before its turn to a free floating system, peg their currencies to the U.S. dollar or some other currency but allow the rate to float within a certain band similar to the Bretton Woods adjustable peg system. The FOREX Market, often considered to be the playground of governmental institutions operating under the agency of central banks, expanded its horizons in recent years to include corporations, hedge funds, and speculators and most recently with the dot com boom and the expansion of the world wide web, now the private investors have been afforded the lucrative opportunity to be a part of the action. The appeal of The FOREX Market is one of non-stop, twenty four hour a day trading for the five business days of the week. The first tentative steps towards a global economy
22
have created a fast moving liquid market facilitating a wide variety of transaction options. Combine this with the ability to make money in both winning and losing markets and you will see why The FOREX Market is considered by some to be the fastest developing most lucrative business opportunity open to the savvy investor who has the skill, intelligence, acumen and backing to create substantial profits. The FOREX Market provides a number of ways for investors to get in on the global high stakes action. From the spot market to spread betting, options, contracts for difference and futures, these are just some of the ways FOREX can turn a modest portfolio with moderate potential, into a heavy hitting enterprise totaling far in excess of what it once was. The BIS or Bank of International Settlements estimated in a recent survey that over $1,200,000,000.00 is exchanged everyday on The FOREX Market. Currently industry analysts think the market is not living up to its 1978 potential of $1,490,000,000.00 and still view this as an attainable goal for the FOREX Market of the future.
Foreign Exchange
A forex rate of exchange is the price of one currency in terms of another currency. It is the means by which banks are able to trade foreign currencies in exchange for Australian dollars. Banks quote prices at which they will buy and sell foreign currency. These prices are based on prices that are quoted in the major wholesale foreign exchange markets and can change constantly throughout the day, depending on market forces. Every currency has a unique three-character International Standardization Organization (ISO) code. The ISO codes are based on the 2-letter country code, plus a third character derived from the name of the currency (e.g. GBP represents the Great Britain Pound and USD the United States Dollar) Every currency pair is expressed as two ISO codes separated by a division symbol (e.g. GBP/USD), the first representing the "base currency and the second the "quote currency (also known as "counter" or "secondary" currency). GBP/USD
23
Base Currency/Quote Currency The exchange rate is usually displayed to the right of the currency pair GBP/USD = 1.6545 This denotes that one unit of the British Pound (the base currency) can be exchanged for 1.6545 US dollars (the quote currency). If you are buying the base currency, it specifies how much you have to pay in the quote currency to obtain one unit of the base currency. If you are selling the base currency, the exchange rate is telling you how much you get in the quote currency for one unit of the base currency. The smallest increment by which a currency can move is called a pip (similar to point in equity trading). The last two decimal places measure the pip movement of a currency. For instance, in the example above, 45 represents the pips. If, in the same example, the GBP/USD appreciated to 1.6560, you would say it moved up (or rose) 15 pips. Or, if it depreciated to 1.6541 you would say is fell (or moved down) 4 pips. There are 3 major groups of factors that influence on exchange rate development:
Fundamental Factors
Fundamental trading strategies consist of macro-economic strategic assessments; these criteria often include the economic condition of the currencys country of origin, the countrys monetary policy, and other "fundamental" elements. Typically, on the world markets, the US economy has the greatest influence. Fully 80% of financial operations conducted in world markets are transacted in dollars. This causes the dollar rise or fall against all other currencies. The fundamental factors affecting world markets are:

Gross national product The level of real percentage The level of unemployment Inflation An index of industrial production
24
Therefore, the common rule for a trader is to orient to the expectations and moods of the majority of investors in the market. Exchange rate movement tendency can be analyzed by reading publications, studying reviews of market situation in information systems such as Reuters, Bridge (Dow Jones), and CQG. Following the publication of the leading economic indicators, the market will inevitably begin to move. A traders primary task is to participate in such movement, which invariably will be lead by the majority in the market. The axiom is - dont miss the boat.
Technical Factors
Technical analysis is a field of market analysis, which supposes that market has a memory and consists primarily of a variety of technical aspects, each of which can be interpreted to generate buy and sell signals or to predict market direction. During the past few years, in response to rapid growth of electronic analytical devices such as those offered by Reuters, Bridge (Dow Jones), CQG and others, greater numbers of traders make their decisions according to the technical analysis, which regularly increases its influence on any real rate movement. Technical analysis is a method for price forecasting based on historical market movement studies. For the last 30 years, studies in the field of technical analysis have proven themselves a science with its own philosophical system and set of operative axioms.
Aside from the fundamental and technical factors
Insuperable circumstances acts of nature (earthquakes, a tsunami, a typhoon, flooding, etc.) Political events war, political scandals, terrorist acts, etc Political speeches Currency interventions by central banks.
One of the main forex terms is forex spread.
25
As with other financial commodities, there is a buying (offer or ask) and a selling (bid) exchange rate. The difference is known as the bid-offer spread or the spread. The forex spread is written in a particular format. For example, GBP/USD = 1.5545/50 means that the bid price of GBP is 1.5545 USD and the offer price is 1.5550 USD. The spread in this case is 5 points. Every purchase of the base currency implies a sale of the secondary currency. Likewise, sale of the base currency implies the simultaneous purchase of the secondary currency. For example, when I sell GBP/USD, I am selling GBP and buying USD. Similarly, when I buy GBP I am simultaneously selling USD. We can express this equivalence by inverting the GBP/USD exchange rate and rotating the bid and offer reciprocals to derive the USD/GBP rate. For example, if GBP/USD = 1.5545/50 then USD/GBP = 1/1.5550 (bid)/(1/1.5545 (offer) = 0.6431/33 The basic unit of trading for private investors is known as a lot which represents 100,000 units of the base currency. Some brokers permit trading in mini-lots. The purchase of a single lot of GBP/USD at 1.5852 implies 100,000 GBP bought at 158,520 USD. The sale of a single lot of GBP/USD at 1.5847 entails the sale of 100,000 for 158,470 USD. The spot forex trading spread is how brokers make their money. Wider spreads will result in a higher asking price and a lower bid price. The end result is that you have to pay more when you buy and get less when you sell, which makes it more difficult to realize a profit. Brokers generally don't earn the full spread, especially when they hedge client positions. The spread helps to compensate for the market maker for taking on risk from the time it starts a client trade to when the broker's net exposure is hedged (which could possibly be at a different price).
26
Spot forex trading spreads are important because they affect the return on your trading strategy in a big way. As a trader, your sole interest is buying low and selling high (like futures and commodities trading). Wider spreads means buying higher and having to sell lower. A half-pip lower spread doesn't necessarily sound like much, but it can easily mean the difference between a profitable trading strategy and one that isn't profitable. The tighter the spread is the better things are going to be for you. However tight spreads are only meaningful when they are paired up with good execution. Quality of execution will decide whether you actually receive tight spreads. A good example of this is when your screen shows a tight spread, but your trade is filled a few pips to your disadvantage or is mysteriously rejected. Spread policies change a great deal from broker to broker, and the policies are often difficult to see through. This certainly makes comparing brokers much more difficult. Some brokers actually offer fixed spreads that are guaranteed to remain the same regardless of market liquidity. But since fixed spreads are traditionally higher than average variable spreads, you are paying an insurance premium during most of the trading day so that you can get protection from short-term volatility. Other brokers offer traders variable spreads depending on market liquidity. Spreads are tighter when there is good market liquidity but they will widen as liquidity dries up. When it comes to choosing between fixed and variable rates, the choice depends on your individual trading pattern. If you trade primarily on news announcements that you hear, you may be better off with fixed spreads. But only if quality of execution is good. Some brokers have different spreads for different clients based on their accounts. For example; those clients that have larger accounts or those who make larger trades may receive tighter spreads, while the clients that are referred by an introducing broker might receive wider spreads in order to cover the costs of the referral. Some offer the same spreads to everyone. Problems can come up when you are trying to learn about a company's spread policy because this information, along with information on trade execution and order-book depth is rather difficult to get. Because of this, many traders get caught up in all of the promises
27
they hear, and take a broker's words at face value. This can be dangerous. The only real way to find out is to try out various brokers or talk to those who have. In summary, the spread is the difference between the price that you can sell currency at ( Bid ) and the price you can buy currency at ( Ask ). The spread on majors is usually 5 pips under normal market conditions. A pip is the smallest unit by which a cross price quote changes. When trading forex you will often hear that there is a 5-pip spread when you trade the majors. This spread is revealed when you compare the bid and the ask price, for example EURUSD is quoted at a bid price of 0.9875 and an ask price of 0.9880. The difference is USD 0.0005, which is equal to 5 "pips". On a contract or position, the value of a pip can easily be calculated. You know that the EURUSD is quoted with four decimals, so all you have to do is the cancel-out the four zeros on the amount you trade and you will have one pip. Thus, on a EURUSD 100,000 contract, one pip is USD 10. On a USDJPY 100,000 contract, one pip is equal to 1000 yen, because USDJPY is quoted with only two decimals.
Forex Macroeconomic indicators

An economic indicator is simply any economic statistic, such as the unemployment rate, GDP, or the inflation rate, which indicate how well the economy is doing and how well the economy is going to do in the future.
Economic (business) indicators allow analysis of current and predicted economic performances. Economic indicators include various indices, earnings reports, and economic summaries, such as unemployment, housing starts, Consumer Price Index (a measure for inflation), industrial production, bankruptcies, Gross Domestic Product, retail sales, stock market prices, money supply changes, etc. Economic indicators are reports released by the government or a private organization that detail a country's economic performance. Economic reports are the means by which a
28
country's economic health is directly measured, but do remember that a great deal of factors and policies will affect a nation's economic performance. These reports are released at scheduled times, providing the market with an indication of whether a nation's economy has improved or declined. The effects of these reports are comparable to how earnings reports, SEC filings and other releases may affect securities. In forex, as in the stock market, any deviation from the norm can cause large price and volume movements. These are the most important economic indicators for any country: 1. Interest rate decision 2. Retail sales 3. Inflation (consumer price or producer price) 4. Unemployment 5. Industrial production 6. Business sentiment surveys 7. Consumer confidence surveys 8. Trade balance 9. Manufacturing sector surveys Depending on the current state of the economy, the relative importance of these releases may change. For example, unemployment may be more important this month than trade or interest rate decisions. Therefore, it is important to keep on top of what the market is focusing on at the moment. Various indicators are released by government and academic sources. They are reliable measures of economic health and are followed by all sectors of the investment market. Indicators are usually released on a monthly basis but some are released weekly. Two of the most important fundamental indicators are interest rates and international trade. Other indicators include the Consumer Price Index (CPI), Durable Goods Orders, Producer Price Index (PPI), Purchasing Manager's Index (PMI), and retail sales. There are 28 major indicators used in the United States. Indicators have strong effects on financial markets so FOREX traders should be aware of them when preparing strategies.
29
Up-to-date information is available on many websites and many FOREX brokers supply this information as part of their trading service. Most economic indicators can be divided into leading and lagging indicators. Leading indicators are economic factors that change before the economy starts to follow a particular pattern or trend. Leading indicators are used to predict changes in the economy. The leading indicators consist of the following economic indicators:

average workweek of production workers in manufacturing; average weekly claims for state unemployment; new orders for consumer goods and materials; vendor performance contracts and orders for plant and equipment; new building permits issued; change in manufacturers' unfilled ; durable goods; change in sensitive materials prices.
Lagging Indicators are economic factors that change after the economy has already begun to follow a particular pattern or trend. That is, economic indicators are useful tools that allow you to assess the overall strength and likely direction of the economy. These indicators can also have a significant impact on financial markets, and it is important for you as a trader to understand and monitor them. Here is a brief description of some of the more important and widely used economic indicators. These are a few that I follow closely, but there are many others. While these indicators tend to have the most direct impact on the financial futures markets, they are important to watch for their economic implications, no matter what markets you trade.
Forex fundamental indicators glossary

Gross Domestic Product (GDP) The GDP is considered the broadest measure of a country's economy, and it represents the total market value of all goods and services produced in a country during a given year.
30
Since the GDP figure itself is often considered a lagging indicator, most traders focus on the two reports that are issued in the months before the final GDP figures: the advance report and the preliminary report. Significant revisions between these reports can cause considerable volatility. The GDP is somewhat analogous to the gross profit margin of a publicly traded company in that they are both measures of internal growth. Retail Sales The retail-sales report measures the total receipts of all retail stores in a given country. This measurement is derived from a diverse sample of retail stores throughout a nation. The report is particularly useful because it is a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables. It can be used to predict the performance of more important lagging indicators, and to assess the immediate direction of an economy. Revisions to advanced reports of retail sales can cause significant volatility. The retail sales report can be compared to the sales activity of a publicly traded company. Industrial Production This report shows the change in the production of factories, mines and utilities within a nation. It also reports their 'capacity utilizations', the degree to which the capacity of each of these factories is being used. It is ideal for a nation to see an increase of production while being at its maximum or near maximum capacity utilization. Traders using this indicator are usually concerned with utility production, which can be extremely volatile since the utilities industry, and in turn the trading of and demand for energy, is heavily affected by changes in weather. Significant revisions between reports can be caused by weather changes, which in turn, can cause volatility in the nation's currency. Consumer Price Index (CPI) The CPI is a measure of the change in the prices of consumer goods across over 200 different categories. This report, when compared to a nation's exports, can be used to see if a country is making or losing money on its products and services. Be careful, however, to monitor the exports - it is a focus that is popular with many traders because the prices of exports often change relative to a currency's strength or weakness.
31
Some of the other major indicators include the purchasing managers index (PMI), producer price index (PPI), durable goods report, employment cost index (ECI), and housing starts. And don't forget the many privately issued reports, the most famous of which is the Michigan Consumer Confidence Survey. All of these provide a valuable resource to traders, if used properly. Balance of payments This analysis is based on the balance of payments 1) of a given country. The internal situation determines the volume of imports and the economic situation abroad determines that of exports. To this is added capital movements which depend on the difference between interest rates. Overseas trade and capital movements together determine the supply and demand for currencies on the market and therefore their price (exchange rate). 1) The balance of payments is made up of the value of all economic transactions (trade balance, services, capital yield) undertaken in one year between a given country and overseas. In contrast to fundamental analysis, technical analysis only takes into consideration rate trends of the past. The predictions are based solely on historic rates. Its aim is to collect information relating to supply and demand conditions on the foreign exchange markets by means of an appropriate chart or calculation. Technical analysis is carried out by means of a graphic representation of indicators in chronological order. It can also be used for exchange rates, interest and share prices. It provides important indicators for the study of a market. Past price trends and the extrapolation of certain historic rates enable forecasts to be made. The presentation of a rate trend starts with the selection of data. On the foreign exchange market, the rates change several times a minute, so that you are faced with a considerable flow of data. The selection of data is determined by the objective analysis of charts. The forex trader must be able to obtain a sound appreciation of rate trends in the space of one day. In addition, entering rates within a few minutes may take on great importance for him. On the other hand, it is the responsibility of the head of the financial department of a company to study the long-term trend; it is generally sufficient for him to know the prices at the end of the day or even at the end of the week.
32
Interest Rates Can have either a strengthening or weakening effect on a particular currency. On the one hand, high interest rates attract foreign investment which will strengthen the local currency. On the other hand, stock market investors often react to interest rate increases by selling off their holdings in the belief that higher borrowing costs will adversely affect many companies. Stock investors may sell off their holdings causing a downturn in the stock market and the national economy. Determining which of these two effects will predominate depends on many complex factors, but there is usually a consensus amongst economic observers of how particular interest rate changes will affect the economy and the price of a currency. International Trade Trade balance which shows a deficit (more imports than exports) is usually an unfavourable indicator. Deficit trade balances means that money is flowing out of the country to purchase foreign-made goods and this may have a devaluing effect on the currency. Usually, however, market expectations dictate whether a deficit trade balance is unfavourable or not. If a county habitually operates with a deficit trade balance this has already been factored into the price of its currency. Trade deficits will only affect currency prices when they are more than market expectations. Durable Goods Orders Durable Goods Orders are a measure of the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. Monthly percent changes reflect the rate of change of such orders. Levels of, and changes in, durable goods order are widely followed as an indicator of factory sector momentum. Durable Goods Orders are a major indicator of manufacturing sector trends because most industrial production is done to order. Often, the indicator is followed but excludes Defence and Transportation orders because these are generally much more volatile than the rest of the orders and can obscure the more important underlying trend. Durable Goods Orders are measured in nominal terms and therefore include the effects of inflation. Therefore the Durable Goods Orders should be
33
compared to the trend growth rate in PPI to arrive at the real, inflation-adjusted Durable Goods Orders. Rising Durable Goods Orders are normally associated with stronger economic activity and can therefore lead to higher short-term interest rates that are often supportive to a currency at least in the short term. Current Account Balance The current account figures are released quarterly and are a wider measure of the balance of payments than the trade balance. The figures include elements such as trade in services and investment income as well as the trade in goods. Also included, are direct investment inflows. A widening deficit illustrates the trade problems and increases the dependency on capital inflows to the US. Wider deficits will increase the dollars risk profile. A high deficit will tend to weaken the dollar. Usually, a sustained annual deficit above 5.0% of GDP is a serious warning sign for a currency. Employment Cost Index (ECI) Payroll employment is a measure of the number of jobs in more than 500 industries in all states and 255 metropolitan areas. The employment estimates are based on a survey of larger businesses and counts the number of paid employees working part-time or full-time in the nation's business and government establishments.
Jobless Claims Definition: This report indicates how many new claims for jobless benefits were filed by unemployed workers in the latest week. The figures are prepared on a state-by-state basis by government agencies and are then aggregated. The number of continuing claims are also released. There are problems with seasonal adjustments and the 4-week moving average is normally the more important figure in determining the underlying trend. Non-farm Payrolls Each month the Bureau of Labour Statistics estimates the number of people employed in the US through a sample of companies. As the name suggests, the agricultural sector is
34
excluded. Replies from companies are taken and the non-farm payroll figure is the difference in total compared with the previous month. The report is normally released on the first Friday of the month. The report is seasonally adjusted to smooth out to produce a smooth series. There is a breakdown of employment in different sectors of the economy. Also included, are figures on weekly hours and earnings. An average or neutral monthly employment increase is in the region of +200,000 given that the US working population is consistently rising by around 150,000 a month. Payroll growth of 150,000 is, therefore, needed just to keep pace with higher number of workers. A negative figure, i.e. lower employment, suggests that the US economy is in recession. A figure above 400,000 indicates a very strong economy. Availability: First Friday of the month at 8:30 am EST. Data for prior month. Frequency: Monthly PMI Index The PMI report is equivalent to the ISM reports in the US.
Producer Price Index (PPI) The Producer Price Index (PPI) measures the average price of a fixed basket of capital and consumer goods at the wholesale level. There are three primary publication structures for the PPI: industry, commodity, and stage-of-processing. Its important to monitor the PPI excluding food and energy prices for its monthly stability. This is referred as the core PPI and gives a clearer picture of the underlying inflation trend. Changes in the core PPI are considered a precursor of consumer price inflation. Inflationary pressure is generated when the core PPI posts larger-than-expected gains. Availability: Around the 11th of each month at 8:30am EST. Data for month prior. Frequency: Monthly
35
Payroll Employment Payroll employment is a measure of the number of people being paid as employees by non-farm business establishments and units of government. Monthly changes in payroll employment reflect the net number of new jobs created or lost during the month and changes are widely followed as an important indicator of economic activity. Payroll employment is one of the primary monthly indicators of aggregate economic activity because it encompasses every major sector of the economy. It is also useful to examine trends in job creation in several industry categories because the aggregate data can mask significant deviations in underlying industry trends. Large increases in payroll employment are seen as signs of strong economic activity that could eventually lead to higher interest rates that are supportive of the currency at least in the short term. If, however, inflationary pressures are seen as building, this may undermine the longer term confidence in the currency. Housing Starts and Building Permits A measure of the number of residential units on which construction is begun each month. Importance: Its used to predict the changes of gross domestic product. While residential investments represents just four percent of the level of GDP, due to its volatility, it frequently represents a much higher portion of changes in GDP over relatively short periods of time. Availability: Around the 16th of the month at 8:30 am EST. Data for month prior. Frequency: Monthly Forex macroeconomic indicators groups An economic indicator (or business indicator) is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance. Economic indicators include various indices, earnings reports, and economic summaries, such as unemployment, housing starts, Consumer Price Index (a measure for
36
inflation), industrial production, bankruptcies, Gross Domestic Product, retail sales, stock market prices, and money supply changes. Economic indicators are primarily studied in a branch of macroeconomics called "business cycles". The leading business cycle dating committee in the United States of America is the National Bureau of Economic Research. The Bureau of Labor Statistics is the principal fact-finding agency for the U.S. government in the field of labor economics and statistics. Economic Indicators can be leading, lagging, or coincident which indicates the timing of their changes relative to how the economy as a whole changes. Leading Leading economic indicators are indicators which change before the economy changes. Stock market returns are a leading indicator, as the stock market usually begins to decline before the economy declines and they improve before the economy begins to pull out of a recession. Leading economic indicators are the most important type for investors as they help predict what the economy will be like in the future. Leading indicators are economic indicators which tend to change before the general economic activity. Examples:

New business formation New building permits Stock prices Initial state unemployment insurance claims Change in sensitive materials prices Change in credit outstanding Vendor performance Average work week hours Change in inventories Contracts and orders for plant and equipment New orders for consumer goods and materials Money supply (M2)
37
Lagged A lagged economic indicator is one that does not change direction until a few quarters after the economy does. The unemployment rate is a lagged economic indicator as unemployment tends to increase for 2 or 3 quarters after the economy starts to improve. Lagging indicators trail behind the general economic activity. Examples:

Labor costs (%) Ratio of consumer installment credit to personal income Average prime rate charged by banks Average duration of employment (weeks) Ratio of inventories to sales Commercial and industrial loans outstanding Gross National Product Money supply Federal budget deficit or surplus Foreign exchange rates U.S. trade balance (imports and exports) Producer price indexes for major commodity groups (PPI) Consumer price index for urban consumers (CPI) Unemployment rate (civilian labor force) Personal income per capita (by region and state) Income by households Average weekly hours of work Average weekly earnings U.S. gold prices U.S. silver prices Price at well of crude petroleum Price of regular gasoline
Coincident
38
A coincident economic indicator is one that simply moves at the same time the economy does. The Gross Domestic Product is a coincident indicator. Coincident indicators are indicators which occur at the same time as the economic activity. Examples:

Payroll Industrial production Employees on nonagricultural payrolls Personal income ManufacEagle Tradersg and trade sales
The time difference between the indicator and the economic activity is called lead time or lag time. To understand economic indicators, we must understand the ways in which economic indicators differ. There are three major attributes each economic indicator has: Relation to the Business Cycle / Economy Economic Indicators can have one of three different relationships to the economy: Procyclic A procyclic (or procyclical) economic indicator is one that moves in the same direction as the economy. So if the economy is doing well, this number is usually increasing, whereas if we're in a recession this indicator is decreasing. The Gross Domestic Product (GDP) is an example of a procyclic economic indicator. Countercyclic A countercyclic (or countercyclical) economic indicator is one that moves in the opposite direction as the economy. The unemployment rate gets larger as the economy gets worse so it is a countercyclic economic indicator. Acyclic
39
An acyclic economic indicator is one that has no relation to the health of the economy and is generally of little use. The number of home runs the Montreal Expos hit in a year generally has no relationship to the health of the economy, so we could say it is an acyclic economic indicator. Many different groups collect and publish economic indicators, but the most important American collection of economic indicators is published by The United States Congress. Their Economic Indicators are published monthly and are available for download in PDF and TEXT formats. The indicators fall into seven broad categories:
Total Output, Income, and Spending

o o o o o o o o
Gross Domestic Product (GDP) [quarterly] Real GDP [quarterly] Implicit Price Deflator for GDP [quarterly] Business Output [quarterly] National Income [quarterly] Consumption Expenditure [quarterly] Corporate Profits[quarterly] Real Gross Private Domestic Investment[quarterly]
Employment, Unemployment, and Wages

o o o o
The Unemployment Rate [monthly] Level of Civilian Employment[monthly] Average Weekly Hours, Hourly Earnings, and Weekly Earnings[monthly] Labor Productivity [quarterly] Industrial Production and Capacity Utilization [monthly] New Construction [monthly] New Private Housing and Vacancy Rates [monthly] Business Sales and Inventories [monthly] Manufacturers' Shipments, Inventories, and Orders [monthly]
Production and Business Activity

o o o o o
Prices
40
o o o
Producer Prices [monthly] Consumer Prices [monthly] Prices Received And Paid By Farmers [monthly] Money Stock (M1, M2, and M3) [monthly] Bank Credit at All Commercial Banks [monthly] Consumer Credit [monthly] Interest Rates and Bond Yields [weekly and monthly] Stock Prices and Yields [weekly and monthly] Federal Receipts (Revenue)[yearly] Federal Outlays (Expenses) [yearly] Federal Debt [yearly] Industrial Production and Consumer Prices of Major Industrial Countries U.S. International Trade In Goods and Services U.S. International Transactions
Money, Credit, and Security Markets

o o o o o
Federal Finance
o o o
International Statistics
o o o
Each of the statistics in these categories helps create a picture of the performance of the economy and how the economy is likely to do in the future. Total Output, Income, and Spending These tend to be the most broad measures of economic performance and include such statistics as (see above): The Gross Domestic Product is used to measure economic activity and thus is both procyclical and a coincident economic indicator. The Implicit Price Deflator is a measure of inflation. Inflation is procyclical as it tends to rise during booms and falls during periods of economic weakness. Measures of inflation are also coincident indicators. Consumption and consumer spending are also procyclical and coincident. Employment, Unemployment, and Wages
41
These statistics cover how strong the labor market is and they include the following (see above): The unemployment rate is a lagged, countercyclical statistic. The level of civilian employment measures how many people are working so it is procyclic. Unlike the unemployment rate it is a coincident economic indicator. Production and Business Activity These statistics cover how much businesses are producing and the level of new construction in the economy (see above): Changes in business inventories is an important leading economic indicator as they indicate changes in consumer demand. New construction including new home construction is another procyclical leading indicator which is watched closely by investors. A slowdown in the housing market during a boom often indicates that a recession is coming, whereas a rise in the new housing market during a recession usually means that there are better times ahead. Prices This category includes both the prices consumers pay as well as the prices businesses pay for raw materials and include (see above): These measures are all measures of changes in the price level and thus measure inflation. Inflation is procyclical and a coincident economic indicator. Money, Credit, and Security Markets These statistics measure the amount of money in the economy as well as interest rates and include (see above): Nominal interest rates are influenced by inflation, so like inflation they tend to be procyclical and a coincident economic indicator. Stock market returns are also procyclical but they are a leading indicator of economic performance. Federal Finance
42
These are measures of government spending and government deficits and debts (see above): Governments generally try to stimulate the economy during recessions and to do so they increase spending without raising taxes. This causes both government spending and government debt to rise during a recession, so they are countercyclical economic indicators. They tend to be coincident to the business cycle. International Trade These are measure of how much the country is exporting and how much they are importing (see above): When times are good people tend to spend more money on both domestic and imported goods. The level of exports tends not to change much during the business cycle. So the balance of trade (or net exports) is countercyclical as imports outweigh exports during boom periods. Measures of international trade tend to be coincident economic indicators. While we cannot predict the future perfectly, economic indicators help us understand where we are and where we are going. In the upcoming weeks I will be looking at individual economic indicators to show how they interact with the economy and why they move in the direction they do. International Finance Corporation (IFC) International finance is the examination of institutions, practices, and analysis of cash flows that move from one country to another. There are several prominent distinctions between international finance and its purely domestic counterpart, but the most important one is exchange rate risk. Exchange rate risk refers to the uncertainty injected into any international financial decision that results from changes in the price of one country's currency per unit of another country's currency. Examples of other distinctions include the environment for direct foreign investment, new risks resulting from changes in the political environment, and differential taxation of assets and income.
43
The level of international trade is a relevant indicator of economic growth worldwide. Foreign exchange markets facilitate this trade by providing a resource where currencies from all nations can be bought and sold. In addition to international trade, there is a second motivation for international financial activity. Many firms make long-term investments in productive assets in foreign countries. When a firm decides to build a factory in a foreign country, it has likely considered a variety of issues. For example: Where should the funds needed to build the factory be raised? What kinds of tax agreements exist between the home and foreign countries that may influence the after-tax profitability of the new venture? and many others questions. The International Finance Corporation (IFC) is the member of the World Bank Group that promotes the growth of the private sector in less developed member countries. The IFC's principal activity is helping finance individual private enterprise projects that contribute to the economic development of the country or region where the project is located. The IFC is the World Bank Group's investment bank for developing countries. It lends directly to private companies and makes equity investments in them, without guarantees from governments, and attracts other sources of funds for private-sector projects. IFC also provides advisory services and technical assistance to governments and businesses. In other words, International Finance Corporation (IFC) is the lender known 'round the world. IFC promotes economic development worldwide by providing loans and equity financing for private-sector investment. The IFC typically focuses on small and midsized businesses, financing projects in all types of industries, including manufacturing, infrastructure, tourism, health, education, and financial services. Established in 1956, the IFC is part of the World Bank group. Although it often acts in concert with the World Bank and shares its president, the IFC is legally and financially autonomous. It is owned by nearly 180 member countries. The IFC generally operates independently as it is legally and financially autonomous with its own Articles of Agreement, share capital, management and staff. The IFC has 2,400 staff; 178 members; and lends in 80 countries, with 40 per cent of its investments in the financial sector. The IFC's worldwide committed portfolio as of financial year 2005 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications.
44
Money supply definition Money supply is the total amount of money in an economy at a given time. The money supply is considered an important instrument for controlling inflation by those economists who say that growth in money supply will only lead to inflation if money demand is stable. In order to control the money supply, regulators have to decide which particular measure of the money supply to target. The broader the targeted measure, the more difficult it will be to control that particular target. However, targeting an unsuitable narrow money supply measure may lead to a situation where the total money supply in the country is not adequately controlled. The money supply includes:

Notes and coins Money in a current account in the bank Money in a savings account Money in a building society
Money functions

It can be used as a means of exchange or to buy resources It is a measure of value e.g. 1 mars bar = 40p It is a store of value e.g. it keeps its value
In order to monitor the money supply, the Federal Reserve System, the nation's central bank and controller of the monetary policy of the country, uses four measures: M1 is the base measurement of the money supply and includes currency, coins, demand deposits, traveler's checks from non-bank issuers, and other checkable deposits. M2 is equal to M1 plus overnight repurchase agreements issued by commercial banks, overnight Eurodollars, money market mutual funds, money market deposit accounts, savings accounts, time deposits less than $100,000. M3 is M2 plus institutionally held money market funds, term repurchase agreements, term Eurodollars, and large time deposits.
45
L, the fourth measure, is equal to M3 plus Treasury bills, commercial papers, bankers, acceptances, and very liquid assets such as savings bonds. In the UK the main measures of money supply are: M0: Sterling notes and coins in circulation outside the Bank of England including those held in tills of banks and building societies plus banks' operational deposits with the Bank of England. Also known as narrow money. M4: M0 plus all sterling deposits at UK monetary financial institutions held in the M4 private sector. Also known as broad money. Money supply is important because money is used in virtually all economic transactions, it has a powerful effect on economic activity. An increase in the supply of money puts more money in the hands of consumers, making them feel wealthier, thus stimulating increased spending. Business firms respond to increased sales by ordering more raw materials and increasing production. The spread of business activity increases the demand for labor and raises the demand for capital goods. In a buoyant economy, stock market prices rise and firms issue equity and debt. If the money supply continues to expand, prices begin to rise, especially if output growth reaches capacity limits. As the public begins to expect inflation, lenders insist on higher interest rates to offset an expected decline in purchasing power over the life of their loans. Opposite effects occur when the supply of money falls, or when its rate of growth declines. Economic activity declines and either disinflation (reduced inflation) or deflation (falling prices) results. Federal Reserve policy is the most important determinant of the money supply. The Federal Reserve affects the money supply by affecting its most important component, bank deposits. The Federal Reserve requires commercial banks and other financial institutions to hold as reserves a fraction of the deposits they accept. Banks hold these reserves either as cash in their vaults or as deposits at Federal Reserve banks. In turn, the Federal Reserve controls
46
reserves by lending money to banks and changing the "Federal Reserve discount rate" on these loans and by "open-market operations." The Federal Reserve uses open-market operations to either increase or decrease reserves. To increase reserves, the Federal Reserve buys U.S. Treasury securities by writing a check drawn on itself. The seller of the Treasury security deposits the check in a bank, increasing the seller's deposit. The bank, in turn, deposits the Federal Reserve check at its district Federal Reserve bank, thus increasing its reserves. The opposite sequence occurs when the Federal Reserve sells Treasury securities: the purchaser's deposits fall and, in turn, the bank's reserves fall. Who Trades in FOREX? The FOREX is made up of about 5,000 trading institutions such as international banks, central government banks (such as the US Federal Reserve), and commercial companies and brokers for all types of foreign currency. There is no centralized location of FOREX; major trading centers are located in New York, Tokyo, London, Hong Kong, Singapore, Paris, and Frankfurt. All trading is done by telephone or Internet. Businesses use the market to buy and sell their products in other countries, but most of the activity on the FOREX is from currency traders who use it to generate profits from small movements in the market. Even though there are many huge players in FOREX, it is accessible to the small investor also. Previously, there was a minimum transaction size and traders were required to meet strict financial requirements. With the advent of Internet trading, regulations have been changed to allow large interbank units to be broken down into smaller lots. Each lot is worth about $100,000 and is accessible to the individual investor through 'leverage' loans extended for trading. Typically, lots can be controlled with a leverage of 100:1 meaning that US$1,000 will allow you to control a $100,000 currency exchange. The Working of Forex Currencies are always traded in pairs: the US dollar against the Japanese yen, or the English pound against the euro. Every transaction involves selling one currency and buying
47
another, so if an investor believes the euro will gain against the dollar, he will sell dollars and buy euros. The potential for profit exists because there is always movement between currencies. Even small changes can result in substantial profits because of the large amount of money involved in each transaction. At the same time, it can be a relatively safe market for the individual investor. There are safeguards built in to protect both the broker and the investor, and a number of software tools exist to minimize loss. You will often hear the term INTERBANK discussed in ForX terminology. This originally, as the name implies was simply banks and large institutions exchanging information about the current rate at which their clients or themselves were prepared to buy or sell a currency. INTER meaning between and Bank meaning deposit taking institutions. The market has moved on to such a degree now that the term interbank now means anybody who is prepared to buy or sell a currency. It could be two individuals or your local travel agent offering to exchange Euros for US Dollars. You will however find that most of the brokers and banks use centralized feeds to insure reliability of quote. The quotes for Bid (buy) and Offer (sell) will all be from reliable sources. These quotes are normally made up of the top 300 or so large institutions. This insures that if they place an order on your behalf that the institutions they have placed the order with is capable of fulfilling the order. Currency US Dollar Euro Japanese Yen Pound Sterling Swiss Franc 1989 90 27 15 10 1992 82.0 23.4 13.6 8.4 1995 83.3 24.1 9.4 7.3 1998 87.3 20.2 11.0 7.1 2001 90.4 37.6 22.7 13.2 6.1
As you can see from the above table over 90% of all currencies are traded against the US Dollar. The four next most traded currencies are the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP) and Swiss Franc (CHF).
48
As currencies are traded in pairs and exchanged one for the other when traded, the rate at which they are exchanged is called the exchange rate. These four currencies traded against the US Dollar make up the majority of the market and are called major currencies or the majors. As you can see from the above table over 90% of all currencies are traded against the US Dollar. The four next most traded currencies are the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP) and Swiss Franc (CHF). As currencies are traded in pairs and exchanged one for the other when traded, the rate at which they are exchanged is called the exchange rate. These four currencies traded against the US Dollar make up the majority of the market and are called major currencies or the majors. The seven categories of forex currencies: Top currency This rarified rank is reserved only for the most esteemed of international currencies those whose use dominates for most if not all types of cross-border purposes and whose popularity is more or less universal, not limited to any particular geographic region. During the era of territorial money, just two currencies could truly be said to have qualified for this exalted status: Britain's pound sterling before World War I and the U.S. dollar after World War II. Patrician currency Just below the top rank we find currencies whose use for various cross-border purposes, while substantial, is something less than dominant and/or whose popularity, while widespread, is something less than universal. Obviously included in this category today would be the euro, as natural successor to the DM; most observers would still also include the yen, despite some recent loss of popularity. Both are patricians among the world's currencies. Elite currency
49
In this category belong currencies of sufficient attractiveness to qualify for some degree of international use but of insufficient weight to carry much direct influence beyond their own national frontiers. Here we find the more peripheral of the international currencies, a list that today would include inter alia Britain's pound (no longer a Top Currency or even Patrician Currency), the Swiss franc, and the Australian dollar. Plebian currency One step further down from the elite category are Plebian Currencies - more modest monies of very limited international use. Here we find the currencies of the smaller industrial states, such as Norway or Sweden, along with some middle-income emergingmarket economies (e.g., Israel, South Korea, and Taiwan) and the wealthier oil-exporters (e.g., Kuwait, Saudi Arabia, and the United Arab Emirates). Internally, Plebian Currencies retain a more or less exclusive claim to all the traditional functions of money, but externally they carry little weight (like the plebs, or common folk, of ancient Rome). They tend to attract little cross-border use except perhaps for a certain amount of trade invoicing. Permeated currency Included in this category are monies whose competitiveness is effectively compromised even at home, through currency substitution. Although nominal monetary sovereignty continues to reside with the issuing government, foreign currency supersedes the domestic alternative as a store of value, accentuating the local money's degree of inferiority. Permeated Currencies confront what amounts to a competitive invasion from abroad. Judging from available evidence, it appears that the range of Permeated Currencies today is in fact quite broad, encompassing perhaps a majority of the economies of the developing world, particularly in Latin America, the former Soviet bloc, and Southeast Asia. Quasi-currency One step further down are currencies that are superseded not only as a store of value but, to a significant extent, as a unit of account and medium of exchange, as well. QuasiCurrencies are monies that retain nominal sovereignty but are largely rejected in practice
50
for most purposes. Their domain is more juridical than empirical. Available evidence suggests that some approximation of this intensified degree of inferiority has indeed been reached in a number of fragile economies around the globe, including the likes of Azerbaijan, Bolivia, Cambodia, Laos, and Peru. Pseudo-currency The bottom rank of the pyramid, where currencies exist in name only - PseudoCurrencies. The most obvious examples of Pseudo-Currencies are token monies like the Panamanian balboa, found in countries where a stronger foreign currency such as the dollar is the preferred legal tender.
Forex margin trading Forex margin trading play a great role in forex trading study. A private investor who purchases, say, GBP/USD is required to put down a deposit known as margin. Since the sale of one currency involves the purchase of another, the seller of GBP/USD will have bought a volume of USD and will also have to put down margin. Normal margin requirement is between 1% and 5% of the underlying value of the trade. With 5,000 USD in your margin account and a margin requirement of 2.5%, you can open positions worth 200,000 USD. If the funds in your margin account drop below the minimum required to support your open positions, then you may be asked to provide additional funds. This is known as a margin call. Margin is the required equity that an investor must deposit to collateralize a position. Trading on margin means that you can buy and sell assets that represent more value than the capital in your account. Forex trading is usually done with relatively little margin since currency exchange rate fluctuations tend to be less than one or two percent on any given day. To take an example, a margin of 2.0% means you can trade up to $500,000 even though you only have $10,000 in your account.
51
In terms of leverage this corresponds to 50:1, because 50 times $10,000 is $500,000, or put another way, $10,000 is 2.0% of $500.000. Using this much leverage gives you the possibility to make profits very quickly, but there is also a greater risk of incurring large losses and even being completely wiped out. Therefore, it is inadvisable to maximise your leveraging as the risks can be very high. In order to attract investors to the FOREX market who wish to risk less than one million dollars at any given time (a standard lot for trading on the exchange market), it employs what is referred to as a margin trade. Forex Margin trading was created for purposes of potentially advantageous trades of currency in 1985. This process, simply stated, involves a cash deposit, usually much smaller than the underlying value of the currency or commodity contract, is required in order to affect the trade. The primary distinction between the FOREX trading system from other financial markets, is that foreign currency purchase-sale operations can be made without having a set required sum to perform trading operations. In order to conduct a purchase, a client needs to invest only a small start up amount, which is referred to as a margin. This gives him an opportunity to make deals in volumes that are 50-100 times greater the start up amount. This so-called shoulder or leverage, is granted by a bank or other credit institution, where the client deposits a guaranteed margin. For example, simply depositing a guaranteed amount of $100,000 in a bank or broker company, enables an individual to make financial operations in amounts of 5 to 10s of millions of dollars. Therefore, even a modest gain on the FOREX market (relative to the input amount) is considered to be of significant size. Another advantage of FOREX is profit derived from any direction of price changing, regardless of the particular currency involved. Some important terms connected with margin: Initial margin is paid by both buyer and seller. It represents the loss on that contract, as determined by historical price changes, that is not likely to be exceeded on a usual day's trading.
52
Because a series of adverse price changes may exhaust the initial margin, a further margin, usually called variation or maintenance margin, is required by the exchange. This is calculated by the futures contract, i.e. agreeing a price at the end of each day, called the "settlement" or mark-to-market price of the contract. Margin-equity ratio is a term used by speculators, representing the amount of their trading capital that is being held as margin at any particular time. Traders would rarely (and unadvisedly) hold 100% of their capital as margin. The probability of losing their entire capital at some point would be high. By contrast, if the margin-equity ratio is so low as to make the trader's capital equal to the value of the futures contract itself, then they would not profit from the inherent leverage implicit in futures trading. A conservative trader might hold a margin-equity ratio of 15%, while a more aggressive trader might hold 40%. Return on margin (ROM) is often used to judge performance because it represents the gain or loss compared to the exchange's perceived risk as reflected in required margin. ROM may be calculated (realized return) / (initial margin). The Annualized ROM is equal to (ROM+1)(year/trade_duration)-1. For example if a trader earns 10% on margin in two months, that would be about 77% annualized. Forex psychology Forex (or trading) psychology is very difficult but at the same time very important and interesting for study. As every successful Forex trader knows, it is not enough just to have the technical knowhow of the actual mechanics of trading the Forex (foreign currency exchange) market, but to recognise that to be a winner relies also on the psychology of trading Forex requires mental discipline. While the aim is to capture as many Pips (Price Interest Points) as possible, in order to make your profit, your head needs to rule your heart in Forex trading. Dont get carried away by the thrill and excitement of the moment! Have a plan or strategy in place before you start trading, and predetermine your exit point. Within the Forex trading experience, you will have losing trades (every Forex trader does). But the art is in knowing when to let go of these, and not hang on in the hope that
53
they will turn around and start making money. Dont keep lowering your stop-loss order in anticipation of an upturn in the market that may not come for some while, and dont persist just to try and prove yourself right! Smart traders know there will always be another trade along soon. Equally, know also when to exit from profitable trades. A golden rule is always to place a stop-loss order, along with every entry order, to prevent any loss from sinking too far. Anyone who doesnt place a stop-loss order is going to lose probably a lot of money. An acknowledged maxim is to cut your losers, but let your winners ride. Apply discipline and emotional control when trading, and follow the rules. Try not to be too greedy. While it is great to be passionate about what you do, patience can be a virtue when Forex is concerned. Dont let your emotions hold sway, and resist the urge to gamble! Have the courage to stick with your plan and stay with the rules. Believe in yourself for that winning system. Most of all, gain an understanding of the charts, for they represent so much and are relatively easy to interpret and use. Forex trading develops strong trends, and although a more volatile market, predictability is one of the advantages of this market over others such as futures and stocks. Technical analysis is the most precise way of trading Forex, with charts showing the historical data, which over time has patterns repeating themselves, and can be used reliably for predicting future trends. The key, of course, is recognising these price patterns to know when to place orders in present-day trading. Research has shown that those who trade with the trend improve their chances of success. Dont cloud your mind with non-essentials such as wondering about the reasons for price movements. In other words, if the market trends show your judgement to be correct, stay with the market for the maximum gain, according to your own risk-to-profit boundaries. If the market starts to go against you, take your profits and get out. It is wise to open a demo account and to practise trading on paper first before risking your money. If youre unsuccessful in this, it is unlikely that you will suddenly become an expert trader in a live account, when using your own finances adds to the pressure to succeed. Never risk more money than you can afford to lose.
54
Forex trading mistakes and what to do with them 1)Belief change. Every mistake is a learning experience. They all have something valuable to offer. Try to counteract the natural tendency of feeling frustrated and approach mistakes in a positive manner. Instead of yelling to everyone around and feeling disappointed, say to yourself "ok, I did something wrong, what happened? What is it?
2) Identify the mistake made. Define the mistake, find out what caused the mistake, and try as hard as you can to effectively see the nature of that mistake. Finding the mistake nature will prevent you from making the same mistake again. More than often you will find the answer where you less expected. Take for instance a trader that doesn't follow the system. The reason behind this could be that the trader is afraid of loosing. But then, why is he or she afraid? It could be that the trader is using a system that does not fit him or her, and finds difficult to follow every signal. In this case, as you can see, the nature of the mistake is not in the surface. You need to try as hard as you can to find the real reason of the given mistake. 3) Measure the consequences of the mistake. List the consequences of making that particular mistake, both good and bad. Good consequences are those that make us better traders after dealing with the mistake. Think on all possible reasons you can learn from what happened. For the same example above, what are the consequences of making that mistake? Well, if you don't follow the system, you will gradually loose confidence in it, and this at the end will put you into trades you don't really want to be, and out of trades you should be in. 4) Take action. Taking proper action is the last and most important step. In order to learn, you need to change your behavior. Make sure that whatever you do, you become "this-mistake-proof". By taking action we turn every single mistake into a small part of success in our trading
55
career. Continuing with the same example, redefining the system would be the trader's final step. The trader would put a system that perfectly fits him or her, so the trader doesn't find any trouble following it in future signals. Every trading activity is in fact participating in a battle. Winning the battle is a matter of knowledge, skill and experience. If you miss any of those you are going to join the long line of losers. Some says that 95 to 99 percent of the traders are lining up on the loser's side. How to win the battle in the currency market? It is easy to answer that question, based on the above approach prepare yourself for the battle. If you treat currency market activity as a hobby you'll ultimately lose all investments there. If you treat it as a business you still may loose everything. The correct approach is: consider each pressing of the Buy/Sell button as entering a battlefield. If you enter it without having a knowledge, skill and experience on how to win, you are destined to fail. You may have some lucky trades in the beginning, though. That, by the way, is the worst case scenario for the rookie in trading. The earlier you get your bad lessons, the better for your overall experience. No mater how good you consider yourself prepared, after demo trading lessons, you have no idea of the forces ruling on the real market. In fact the worst enemy you are going to face in the very beginning is not hiding behind the walls of the global currency trading centers. Your most dangerous foe is hiding deep inside of you. That enemy is so powerful that you will be amazed how quickly it will wash away all your carefully considered decision. Advantages of FOREX Market There are many benefits and advantages to trading Forex. Here are just a few reasons why so many people are choosing this market as a profitable business opportunity: 1. Powerful forex leverage
56
In Forex trading, a small margin deposit can control a much larger total contract value. Leverage gives the trader the ability to make extraordinary profits and at the same time keep risk capital to a minimum. 2. Liquidity Because the Forex Market is so large, it is also extremely liquid. This means that with a click of a mouse you can instantaneously buy and sell at will. You are never 'stuck' in a trade. You can even set the online trading platform to automatically close your position at your desired profit level (limit order), and/or close a trade if a trade is going against you (stop order). 3. Forex trading online is instant. The FX market is fast. Orders are executed, filled and confirmed usually within 1-2 seconds. Since this is all done electronically with no humans involved, there is little to slow it down! 4. Zero forex commissions Because you access the market directly through electronic online forex trading you pay zero commissions or exchange fees. 5. Limited risk Your risk is strictly limited. You can never lose more than you have in your forex account. This means you can never have a negative equity balance. You can also define and limit your risk with stop-loss orders, which are guaranteed by stocks on all forex orders up to $1 million in size. 6. Guaranteed prices and Instantaneous Fills You get instantaneous execution and total price certainty on all orders up to $1 million in size. This allows you to trade forex with confidence off real-time, two-way quotes. And this price guarantee applies to stop-loss and limit orders as well. 7. 24-hour market
57
Forex is a 24-hour-a-day market that literally follows the sun around the world, from the U.S. to Australia and New Zealand to Hong Kong, the Far East, Europe and then back again to the U.S. The huge number and diversity of forex investors involved make it difficult even for governments to control the direction of the forex market. The unmatched liquidity, and around-the-clock global activity make forex the ideal market to trade. 8. Free 'demo' accounts, news, charts and analysis Most Online Forex firms offer free 'Demo' accounts to practice trading, along with breaking Forex news and charting services. These are very valuable resources for traders who would like to hone their trading skills with 'virtual' money before opening a live trading account. 9. 'Mini' trading One might think that getting started as a currency trader would cost a lot of money. The fact is, it doesn't. Some Forex firms now offer 'mini' trading accounts with a minimum account deposit of only $200 with no commission trading. This makes Forex much more accessible to the average individual, without large, start-up capital. FOREX Risk Any company that conducts at least some of its business in another currency is exposed to currency forex risk (or foreign exchange risk, or exchange rate risk). However, this risk is present only if the company's sales currency differs from the company's cost currency if a company's revenues and expenses are both denominated in the same foreign currency, there is no foreign exchange risk. There are two types of currency risk: transaction risk and translation risk. Transaction risk refers to actual conversions of cash flows from one currency to another, and the extent to which exchange rate changes will affect a company's cash flow. Translation risk is more of an accounting issue, and refers primarily to the impact of exchange rates on earnings and balance sheet items when consolidating financial statements from foreign subsidiaries. From a business standpoint, transaction risk is the more relevant of the two.
58
There are five general types of risk that are faced by all businesses: market risk (unexpected changes in interest rates, exchange rates, stock prices, or commodity prices), credit/default risk; operational risk (equipment failure, fraud); liquidity risk (inability to buy or sell commodities at quoted prices); and political risk (new regulations, expropriation). Businesses operating in the petroleum, natural gas, and electricity industries are particularly susceptible to market riskor more specifically, price riskas a consequence of the extreme volatility of energy commodity prices. Electricity prices, in particular, are substantially more volatile than other commodity prices. Country risk can be divided into two parts, economic risk and political risk. Economic risk refers to the stability of a country's economy. It embodies concerns such as dependence on individual industries or markets, the ability to sustain a vibrant level of activity and to grow, and the supply of natural resources and other important inputs. Political risk is more concerned with the stability of the government that manages the economy. It encompasses concerns such as the ability to move capital in and out of the country, the likelihood of a smooth transfer of power after elections, and the government's overall attitude toward foreign firms. Obviously, these two branches of country risk overlap significantly. There are a variety of services that provide in-depth assessments of country risk for virtually every country; multinational firms make considerable use of these services to form their own decisions regarding international projects. Protective measures to guard against transaction exposure include:

forward contracts price adjustment clauses currency options borrowing and lending in the foreign currency invoice in home currency
A common problem in managing currency risk is that companies only realise that they have a risk when the exposure has been generated. However, currency risk management should begin before exposure risks have been generated otherwise fundamental operating decisions have been taken on the basis of complete information. Companies approaches to exposure vary widely; perhaps by the nature of the business, the competition or the culture
59
of the company. A company could accept a high degree of risk and expect commensurate returns or it could be very risk averse and be prepared to pay quite a high price for certainty. Indeed it may have no stance on currency at all and take everything as it comes with a 'swings and roundabouts' approach. If a company decides to take an active approach to foreign currency management this will centre around the concept of hedging. Hedging a particular currency exposure means establishing an offsetting currency position such that whatever is lost or gained on the original currency exposure is exactly offset by a corresponding foreign exchange gain or loss on the currency hedge. Volatile foreign earnings can cause volatile growth which is more costly than slow stable growth. Hedging can reduce the company's volatility of cash flows because the company's payments and receipts are not forced to fluctuate in accordance with currency movements. This can, in the extreme, reduce the possibility of bankruptcy and therefore allow easier access to credit and lower interest payments due to lower perceived risk. Hedging should also allow for greater certainty about future receipts and payments and consequently enhanced budgetary decisions. Most hedging strategies are costly in terms of fees, premiums or the time involved. Derivatives allow investors to transfer risk to others who could profit from taking the risk. The person transferring risk achieves price certainty but loses the opportunity for making additional profits when prices move opposite his fears. Likewise, the person taking on the risk will lose if the counterpartys fears are realized. Except for transactions costs, the winners gains are equal to the losers losses. Like insurance, derivatives protect against some adverse events. The cost of the insurance is either forgone profit or cash loses. Because of their flexibility in dealing with price risk, derivatives have become an increasingly popular way to isolate cash earnings from price fluctuations. The most commonly used derivative contracts are forward contracts, futures contracts, options, and swaps. A forward contract is an agreement between two parties to buy (sell) a specified quality and quantity of a good at an agreed date in the future at a fixed price or at a price determined by formula at the time of delivery to the location specified in the contract.
60
Forward contracts have problems that can be serious at times. First, buyers and sellers (counterparties) have to find each other and settle on a price. Finding suitable counterparties can be difficult. Discovering the market price for a delivery at a specific place far into the future is also daunting. Second, when the agreed-upon price is far different from the market price, one of the parties may default (non-perform). As companies that signed contracts with California for future deliveries of electricity at more than $100 a megawatt found when current prices dropped into the range of $20 to $40 a megawatt, enforcing a too favorable contract is expensive and often futile. Third, one or the other partys circumstances might change. The only way for a party to back out of a forward contract is to renegotiate it and face penalties. Futures contracts solve these problems but introduce some of their own. Like a forward contract, a futures contract obligates each party to buy or sell a specific amount of a commodity at a specified price. Unlike a forward contract, buyers and sellers of futures contracts deal with an exchange, not with each other.
61
62
Questionnaire
Name Age 18-25 45-58 Gender Occupation
: : 26-35 58 & above : Male Female Businessman Student 36-45
Government Employee Private Co. Employee Others (Specify) Annual Income : Less than Rs. 1 lakh Rs. 2 lakh 5 lakh
Rs. 1 lakh 2 lakh Rs. 5 lakh and above
1) Choose the type of investment you have invested in. (Can choose more than one) Stocks Commodities FOREX Others (Specify) 2) What is the purpose of your investment in the above investments? (Can choose more than one if applicable) Returns To Hedge risk Source of Income Others (Specify) 3) What is the combination of risk and return do you prefer in any of the investments? (Tick mark the applicable box) High Risk High Return Average Return Low Return Average Risk Low Risk
63
4) Are you aware of FOREX Trade? Yes No If No skip to question no. - 12 5) How were you introduced to ForEx? Friends Advertisements Internet 6) Do you trade in ForEx? Yes No If No skip to question no. - 8 Others (Specify) Brokers
7) What factors made you invest in ForEx? High Returns To Hedge risks Others (Specify) 8) What is the amount of risk do you think is involved in Forex Trade? (Tick mark the appropriate box) Low Average High
9) What is your opinion of Forex trade? It is only for Importers and Exporters It is only for heavy investors Small investors can also invest. Anyone can invest. Others (Specify) 10) What are the disadvantages do you feel in Forex Trade? High Margin Amount Complex Concept Complex Clearing Process Any Other (Specify) 11) What are the reasons for not trading in ForEx if you are not trading? Not my concern Lack of Knowledge High Margin Amount Complex Concept Complex Clearing Process Any Other (Specify) 12) Are you aware of Altos Trade? Yes No If No please end. 13) How are you introduced to it? Friends Advertisements
Brokers
64
Internet
Others (Specify)
14) What services are you aware, those provided by Altos? Stocks Commodities FOREX Others (Specify) 15) Are you aware that Altos provide ForEx Trade? Yes No Thank You
65
Cross tabulation
The following questions are been cross-tabbed. Are you aware of Forex Trade? & How were you introduced to it?
Intro to Forex by Advertisements Respondent aware of Forex Total 13 13
Total
13 13
Intro to Forex by Brokers Respondent aware of Forex Total 16 16
Total 16 16
Intro to Forex through Internet Respondent aware of Forex Total 5 5
Total 5 5
66
The respondents who are aware of forex are a total of 34 respondents. Out of 34 respondents 13 are been introduced by advertisements, 16 are been introduced by brokers and 5 of them been introduced through internet. This shows that more of the respondents are been introduced to Forex through the brokers where the respondents are already have invested in any other kind of investment.
No intro as not aware of Forex Respondent not aware of Forex Total 16 16
Total 16 16
Out of 50 respondents 16 of them are not aware of Forex Trade. The respondents so they were never introduced to by anyone. This shows that around 30% of the respondents are not aware of Forex at all.
Questions Cross-tabbed: Are you aware of Altos Trade? How were you introduced to it?
Introduced to Altos by friends Aware of Altos Trade Total Yes 6 6
Total 6 6
Introduced to Altos by
Total
67
advertisements 1 Aware of Altos Trade Total Yes 11 11 Introduced to Altos by brokers 1 Aware of Altos Trade Total Yes 13 13 11 11
Total 13 13
The total respondents who are aware of Altos trade are 30. Out of them 6 have been introduced to Altos by their friends, 11 of them have been introduced by advertisements and 13 of them by brokers where they have invested in any other type of investment. Some of the respondents are been introduced by more than one ways, so there are a total of 53 respondents
Not aware of Altos at all 1 Aware of Altos Trade Total No 23 23
Total 23 23
Other respondents are not aware of Altos trade and hence they are not been introduced to by any ways. This shows there maybe lot many people who could still avail the services of Altos if they are made aware of it. Income Opinion of the respondents toward Forex trade.
Opinion of Forex Trade It is only for It is only Anyone can Not aware of Importers and for Heavy Invest Forex Exporters Investors
Total
68
Annual Income
Less than 1 lakh Rs. 1 lakh Rs. 2 Lakh Rs. 2 Lakh Rs. 5 lakh
8 2 6 3 2 17
8 7
2 14
18 29 3
Total
15
16
50
There are 18 respondents who fall in the category of annual income less than Rs. 1 lakh. Out of them 8 say that it is only for heavy investors, 8 of them say that anyone can invest and 2 of them are not aware of forex. The respondents falling in the category of between Rs. 1 lakh and Rs. 2 lakh are total of 29 of them. Out of 29, 2 of them feel that Forex trade is only for importers and exporters, 6 feel that it is only for heavy investors, 7 feel that anyone can invest and 14 are not aware of forex at all. The next category of resonents are the one whose income is Rs. 2 lakh to Rs. 5 lakh. These respondents are only 3 of them and all of them feel that Forex trade is for heavy investors only.
16 14 12 10 8 6 It is only for Heavy 4 Investors Anyone can Invest Not aware of Forex Less than 1 lakh Rs. 2 Lakh - Rs. 5 l Rs. 1 lakh - Rs. 2 L
Opinion of Forex Tra

It is only for Impor ters and Exporters
Count
2 0
Annual Income
69
The above graph shows the spread of the respondents opinion of Forex trade. The graph also clearly indicates that respondents not aware of Forex trade are high in number. Still the existing market has to be made aware of Forex Trade. Income and Type of Investments Investment in Stock Annual Income Total Less than 1 lakh Rs. 1 lakh - Rs. 2 Lakh Rs. 2 Lakh - Rs. 5 lakh 15 27 3 45 Total 15 27 3 45
Investment in Commodities Annual Income Total Rs. 1 lakh - Rs. 2 Lakh 7 7 Investment in Other investments Annual Income Total Less than 1 lakh Rs. 1 lakh - Rs. 2 Lakh 5 2 7
Total 7 7
Total 5 2 7
The above cross tabs shows that there are 20 respondents (15+5) falling under the category of annual income less than Rs. 1 lakh. Out of 20 15 of them have invested in stocks and 5 of them in other investments as FDs. There are no respondents falling in this category who have invested in commodities. The next category of respondents are the one with annual income between Rs. 1 lakh and Rs. 2 lakh. There are total of 36 (27+7+2) respondents in this category. Out of 36 27 of them have invested in stocks, 7 of them in commodities and 2 of them in other such as FDs. The next category of respondents are
70
whose annual income is between Rs. 2 lakh to Rs. 5 lakh. There are only 3 respondents in this category and they have invested in stocks. As each respondents may have more than one investments the respondents number in this is more than 50 i.e. 59 respondents. Occupation and Opinion of Forex Trade Opinion of Forex Trade Total It is only for It is only for Anyone Not aware Importers and Heavy can Invest of Forex Exporters Investors Government Employee Businessman Occupation Private company Employee Student Total 4 10 2 2 17 17 5 15 6 4 2 16 4 16 23 7 50
The above cross-tabbed table shows the respondents occupation and their opinion of Forex trade. The government employees are not at all aware of Forex trade and there are 4 of such respondents. 10 Businessmen respondents feel that anyone can invest in Forex trade and 6 of them are not aware of Forex trade itself. 2 of Private company employees feel that it is only for importers and exporters, 17 of them say it is only for heavy investors and 4 of them are not aware of Forex trade at all. Out of 7 Student respondents 5 of them feel that anyone can invest and 2 of them are not aware of Forex trade at all. As of total there are 50 respondents. Frequencies Respondents Perception of combination Risk and return. Frequency High Risk - High Return Average Risk - High Return Average Risk - Average Return Low Risk - High Return Total 21 17 8 4 50 Percent 42.0 34.0 16.0 8.0 100.0 Valid Percent 42.0 34.0 16.0 8.0 100.0 Cumulative Percent 42.0 76.0 92.0 100.0
71
The above frequency table shows the spread of respondents perception towards combination of risk and return. The respondents thinking that High risk would give high return are 42% of the total respondents i.e. 21 respondents. 34 percent of the respondents i.e. 17 respondents feel that average risk would give high returns. 16% of the respondents i.e. 8 respondents feel that they would take average risk and so they would also need to get average return. The other remaining respondents 8% i.e. four of them feel that they should get high return even for less risk in the investment. Respondents perception of Forex risk Frequency Average High Not Aware of Forex Total 28 6 16 50 Percent 56.0 12.0 32.0 100.0 Valid Percent 56.0 12.0 32.0 100.0 Cumulative Percent 56.0 68.0 100.0
The above frequency table shows that there are 28 respondents i.e. 56% who feel that Forex trade involves average risk. 6 of them i.e. 12% feel that it involves high risk. 32% i.e. 16 of the respondents are not aware of Forex trade itself. There are no respondents who feel that Forex trade has low risk.
72
73
Recommendations
1) Although Altos is been introduced to many of the respondents by advertisements it is not aggressive compared to other Trading agencies. So they must take up more advertising steps mainly in newspapers as it should create more awareness locally. 2) Based on the respondents awareness level about Forex there are around 30% respondents who are yet not knowing about the Forex trade. Altos can conduct some in house seminars or workshops that can help to rise the level of awareness of Forex trade to its investors. 3) Altos can also motivate their clients to introduce the Forex trade to their friends regarding its trade and advantages. They can also be introduced to dummy trading and make them feel the experience of trading in FOREX.
74
4) Altos is mainly in commodity services in many of its branches. As many of the investors are investing in Stocks Altos can also become aggressive in giving services in Stock trading to its investors. As a fresh investor begins his investment through stocks Altos can tap these potential investors for other of its services also. Thus it can increase the companys awareness to the investors even in other investments. 5) The company should tap the government employees who are less in number and introduce them to the Forex trade and also motivate them to introduce it to their friends and colleagues by conducting events and seminars targeting them itself.
75
Conclusion
Forex in simple terms is the exchange of currencies. Forex play a very important role in the economys growth. India as a developing country has more to trade with other countries and so forex has a very important role to play in Indias economy Investors look for safe and good return investments. They are mainly attracted towards stocks and other kind of investments such as FDs where the risk is quite low or almost negligible. Forex is such an investment which has quite high risks and so mainly its a concern for companies that indulge in importing and exporting. Thus the investors are not much aware of the FOREX trade concept as an investment. They perceive it to be of higher risk. They also feel it has huge investments and so it is only for heavy investors and importers and exporters.
76
This study has helped me to get detail knowledge about Forex trade and also some facts of commodities. It has also helped me to know the perception of investors towards Forex as an investment. Altos trade is mainly concentrating the investors to invest in commodities as it has lesser risk compared to Forex. It has got to know the investors focus towards investments. Altos as an organisation has to concentrate to promote itself in ways to attract the investors.
Bibliography
Sites for secondary data: www.fxtheory.com www.wikipedia.com www.foreignexchangetrader.com
77

MCP Forex - Chintan (MBA05002028)

Загружено:

Сведения о документе

Исходное описание:

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

MCP Forex - Chintan (MBA05002028)

Загружено:

Авторское право:

Доступные форматы

K.L.E.

(Recognized by AICTE, New Delhi and Affiliated to Karnataka University, Dharwad)

Altos Trade, Club Road, Hubli.

KLE Societys Institute of Management Studies and Research

(Recognized by AICTE, New Delhi and Affiliated to Karnataka University, Dharwad)

Director Dr. M. M Bagali Director, KLES IMSR HUBLI.

KLE Societys Institute of Management Studies and Research

Date: 23-05-2007 Place: Hubli

Chintan. P. N M.B.A 4th Sem

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

Sl. No. Particulars 1. 2. 3. 4. 5. 6. 7. 8. Executive Summary Forex in India Altos Profile

Questionnaire Analysis & Findings Recommendations Conclusion

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

ALTOS ADVISORY SERVICES

KLE Societys Institute of Management Studies and Research

MODUS OPERANDI OF TRADING

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

Important milestones in the history of Forex The Gold Standard

KLE Societys Institute of Management Studies and Research

Floating Exchanges Systems

KLE Societys Institute of Management Studies and Research

Exchange Systems Today

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

Aside from the fundamental and technical factors

One of the main forex terms is forex spread.

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

Forex Macroeconomic indicators

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

Forex fundamental indicators glossary

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

Total Output, Income, and Spending

Employment, Unemployment, and Wages

Production and Business Activity

KLE Societys Institute of Management Studies and Research

Money, Credit, and Security Markets

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research

KLE Societys Institute of Management Studies and Research