IFM

By Group 1
Foreign Exchange Market
The foreign exchange market is the market in which participants are
able to buy, sell, exchange and speculate on currencies. The forex
market also enables currency conversion for international trade and
investments.

It has no physical location and operates 24 hours a day, seven days a

week. It sets the exchange rates for currencies with floating rates.

There are two tiers in the market

First tier is Interbank Market- It's where the biggest banks exchange
currencies with each other. Even though it only has a few members, the
trades are enormous.
The second tier is the over-the-counter market where individuals trade.
There are three types of trades.
The spot market is for the currency price at the time of the trade.

The forward market is an agreement to exchange currencies at an

agreed-upon price on a future date.

A swap trade involves both. Dealers buy a currency on the spot

market (at today's price) and sell the same amount in the forward
market.
 Motives for providing
credit in Forex Market
 High foreign interest rates: Creditors are interested to supply in
countries where there is higher interest rate.

Exchange rate expectations: Creditors may consider supplying

capital to countries whose currencies are expected to appreciate
against their own.

International diversifications: Creditors can benefit from

international diversification, which may reduce the probability
of simultaneous bankruptcy across borrowers.
 Tax rates : Creditors will be interested to supply capital in countries where there
is less tax rates for return they receive from giving credit.

Economic conditions : Creditors may expect firms in particular countries to

achieve more favorable performance than those in creditors home country. For
example loosening restrictions in eastern European countries created favorable
conditions there which attracted creditors to that countries.
 EURO BANKING
The Euro () is the official currency of the Eurozone, which consists of 19 of the 28
member states of the European Union.

The Euro is the second largest reserve currency as well as the second most traded currency
in the world after the United States dollar.

The Euro was established by the provisions in the 1992 Maastricht Treaty. On January 1,
1999, the Euro (EUR) was introduced as an account currency, replacing the European
Currency Unit at par.
MEMBER COUNTRIES
Austria Latvia
Belgium Lithuania
Cyprus Luxembourg
Estonia Malta
Finland Netherlands
France Portugal
Germany
Spain
Greece Slovenia
Ireland Slovakia
Italy
 ADVANTAGES OF EURO

Optimal currency area

Transaction costs and risks

Price parity

Macroeconomic stability
Euro currency market
Definition-Euro currency

Currency deposited by national governments or corporations in banks outside

their home market.
This applies to any currency and to banks in any country.
Eg- South Korean won deposited at a bank in South Africa, is considered
Eurocurrency.
It is also known as "euro money."
EURO CURRENCY MARKET
The Eurocurrency market is the money market in which , currency held in banks
outside of the country where it is legal tender, is borrowed and lent by banks in
Europe.
Banks that accept deposits and make loans in the Eurocurrency market are called
Euro banks.
The Eurocurrency market is utilized by large firms and extremely wealthy
individuals who wish to circumvent regulatory requirements, tax laws and
interest rate caps that are often present in domestic banking, particularly in the
united states.
The term Eurocurrency or euro bank is a misnomer since it refers to offshore
banking and is not limited to Europe.