FOREIGN

EXCHANGE
MARKET

Clarisse Evangelista
Regine Mae Ongga
BSA2-2

Topics
1. Definition
2. How it works?
3. Market Size and liquidity
4. Market Participants
5. Types of exchange rates

FOREIGN EXCHANGE
MARKET

Types of exchange rates

Fixed and Floating Exchange Rates
-Fixed exchange rate is the official rate
set by the monetary authorities of the
Governance for one or more currency.
-Under the floating exchange rate, the
value of the currency is decided by
supply and demand factors.
FOREIGN EXCHANGE
MARKET

Types of exchange rates

Indirect and Direct Exchange rates
-Indirect Method- Under this, a given number of
units of foreign currency per unit of local
currency is quoted. Indirect quotation is also
called foreign currency quotation.
FOREIGN

LOCAL

-Direct Method- Under this, a given number of

units of local currency per unit of foreign
currencyLOCAL
is quoted.
FOREIGN
FOREIGN EXCHANGE
MARKET

Topics
1. Definition
2. How it works?
3. Market Size and liquidity
4. Market Participants
5. Types of exchange rates
6. Factors Influencing Exchange Rate

FOREIGN EXCHANGE
MARKET

Factors Influencing Exchange Rate

As with any market, the forex market is driven by demand and supply:
Buyer exceed seller, prices goes up (vice versa)
The following can influence exchange rate:
National economic performance
Central Bank Policy
Interest rate
Trade Balances
Political Factors
Market Sentiment
Unforeseen Events
Despite all these factors, the global forex market is more stable than the
stock market, exchange rates change slowly and in small amount.
FOREIGN EXCHANGE
MARKET

Topics
1. Definition
2. How it works?
3. Market Size and liquidity
4. Market Participants
5. Types of exchange rates
6. Factors Influencing Exchange Rate
7. Financial Instruments

FOREIGN EXCHANGE
MARKET

Topics
1. Definition
2. How it works?
3. Market Size and liquidity
4. Market Participants
5. Types of exchange rates
6. Factors Influencing Exchange Rate
7. Financial Instruments

FOREIGN EXCHANGE
MARKET

Financial Instruments
Option
Futures
Swap
Forward
Spot

FOREIGN EXCHANGE
MARKET

Financial Instruments
1.
Spot
Aspottransaction is a two-day delivery transaction
as opposed to the futures contracts, which are usually
three months.
Characteristics:
- direct exchange between two currencies,
- has the shortest time frame,
-involves cash rather than a contract, and
- interest is not included in the agreed-upon transaction.
Spot trading is one of the most common types of Forex Trading.
FOREIGN EXCHANGE
MARKET

Financial Instruments
2.
In this transaction, money does not
Forward
actually change hands until some
agreed upon future date.
A buyer and seller agree on an
exchange rate for any date in the
future, and the transaction occurs on
that date, regardless of what the
market rates are then.
The duration of the trade can be :
one day, a few days, months or years.
Then the forward contract is negotiated and
agreed upon by both parties.
FOREIGN EXCHANGE
MARKET

Financial Instruments
3.
The most common type of forward transaction
Swap
is the foreign exchange
swap.

In a swap, two parties exchange currencies for

a certain length of time and agree to reverse
the transaction at a later date. These are not
standardized contracts and are not traded
through an exchange. A deposit is often
required in order to hold the position open until
the transaction is
completed.
FOREIGN
EXCHANGE
MARKET

Financial Instruments
4.
Futures

Futures are standardized forward

In contracts and are usually traded on
an exchange created for this purpose.
The average contract length is roughly
3 months.
Futures contracts are usually inclusive
of any interest amounts.

FOREIGN EXCHANGE
MARKET

Financial Instruments
5.
Option
exchange option

A foreign
(commonly
shortened to just FX option) is a derivative
where the owner has the right but
not the
obligation to exchange money denominated in
one currency into another currency at a preagreed exchange rate on a specified date.
The FX options market is the
deepest, largest and most liquid
market for options of any kind in the
world.
FOREIGN EXCHANGE
MARKET

Topics
1. Definition
2. How it works?
3. Market Size and liquidity
4. Market Participants
5. Types of exchange rates
6. Factors Influencing Exchange Rate
7. Financial Instruments
8. Speculation

FOREIGN EXCHANGE
MARKET

Speculation
Speculati
on
Speculator- someone who risks losses for the
possibility of considerable gains.
Controversy about currencyspeculatorsand their
effect on currency devaluations and national
economies recurs regularly.
Currency speculation is considered a highly suspect
activity in many countries
FOREIGN EXCHANGE
MARKET

Topics
1. Definition
2. How it works?
3. Market Size and liquidity
4. Market Participants
5. Types of exchange rates
6. Factors Influencing Exchange Rate
7. Financial Instruments
8. Speculation
9. Risk Aversion

FOREIGN EXCHANGE
MARKET

Risk Aversion
Risk Aversion

Fig.1 Chart showing MSCI World Index of Equities fell while the US dollar
Index rose.

Risk aversion is a kind of trading behavior exhibited by the

foreign exchange market when a potentially adverse event
happens which may affect market conditions. This behavior is
caused when risk averse tradersliquidatetheir positions in risky
FOREIGN
assets and shift the funds
to less EXCHANGE
risky assets due to uncertainty.1
MARKET

Topics
1. Definition
2. How it works?
3. Market Size and liquidity
4. Market Participants
5. Types of exchange rates
6. Factors Influencing Exchange Rate
7. Financial Instruments
8. Speculation
9. Risk Aversion
10. Carry Trade

FOREIGN EXCHANGE
MARKET

Carry Trade
Currency carry trade refers to the act of
borrowing one currency that has a low
interest rate in order to purchase another
with a higher interest rate.
A large difference in rates can be highly profitable
for the trader, especially if high leverage is used.
However, with all levered investments this is a double
edged sword, and large exchange rateprice
fluctuationscan suddenly swing trades into huge.
FOREIGN EXCHANGE
MARKET

Topics
1. Definition
2. How it works?
3. Market Size and liquidity
4. Market Participants
5. Types of exchange rates
6. Factors Influencing Exchange Rate
7. Financial Instruments
8. Speculation
9. Risk Aversion
10. Carry Trade
11. Forex signal
FOREIGN EXCHANGE
MARKET

Forex Signal

Analysts Team

You! (The
Trader)

Delivered via
SMS and E-mail

FOREIGN EXCHANGE
MARKET

Forex Signal
Forex signals
Forex trade alerts, often referred to as "forex
signals", are trade strategies provided by either
experienced traders or market analysts.
This means that users can set their 'Algos' to trade on
their behalf, thus reducing the need to sit and monitor
the markets continuously, plus it can remove the
element of human emotion around executing a trade.
FOREIGN EXCHANGE
MARKET

FOREIGN
EXCHANGE
MARKET

Clarisse Evangelista
Regine Mae Ongga
BSA2-2