m





  
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` Sonal Ingawale - 9182
` Sujay Jadhav - 9185
` Ninad Joshi - 9187
` Priyanka Mhatre - 9196
` Kirti Multani - 9198
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` rganisational setting within which
individuals, governments and banks buy and
sell foreign currencies
` nly a small fraction of daily transactions in
foreign exchange involve trading of currency
` Most foreign exchange transactions involve
transfer of bank deposits
 







` meposits, credits and balances payable in foreign
currency
` mrafts, travellers͛ cheques, letter of credit or bill of
exchange expressed or drawn in Indian currency but
payable in foreign currency
` mrafts, travellers͛ cheques, L/Cs, etc. drawn by banks,
institutions or persons outside India but payable in
Indian currency
` The above definition is as per FEMA (1999)
  
` menotes the price or the ratio or the value at
which one currency is exchanged for another
` Exchange rate is very dynamic
` The foreign exchange market is round-the-
clock market due to different time zones
` Major participants- central banks, commercial
banks, forex brokers, corporations, individuals
 Factors affecting exchange rate
` Major banks that act as market-makers always
give two-way quotes; gives depth and volume
to the market
` Fundamental reasons
` Technical reasons
` Speculation
 Fundamental reasons
` Balance of payments->surplus->appreciation
` Growth rate of the economy-> higher growth-
>depreciation of currency
` Fiscal policy-> financing of fiscal deficit
influences exchange rate
` Monetary policy->loose monetary policy->
depreciation of exchange rate
 V
 

` Freedom or restrictions on capital movements
can affect exchange rates to a large extent
` Among other factors there are:
Huge trade surpluses of oil exporting countries
Capital moving from low-yielding currencies to
high yielding currencies (interest differential)
 ?


` Self-fulfilling prophecies
Anticipation of depreciation of a currency can
cause dealers to sell that currency
` Speculation serves to provide depth and
liquidity to the forex market
` Acts as a cushion as well- contrarian traders
exist in the market
 V  
 
` 
 - Settlement of funds on the same
day (date of the deal).
` V
- Settlement of funds takes place on the
next working day of the date of the deal
` ?
- Settlement of funds takes place on the
second working day following the date of the
deal
 V  
 

` Forward- melivery takes place on 6
day after
the date of the deal
` In the forex market all rates that are quoted
are generally spot rates
` When delivery takes place beyond the spot
date then it is a forward transaction and the
forward rate is applicable.
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` If the forward value of a currency is higher than the
spot value the currency is said to be at a premium
` If the above is reversed the currency is said to be at a
discount
` The forward premium/discount is based on interest
rate differentials of the two currencies involved
` mirect and indirect quotes of exchange rate- direct
quote, local currency is variable
 [uotes of Exchange Rate
` Cross rates- To obtain rates for a particular
currency pair when they are not available
directly
` Bid and offered rates- In USm/INR 39.40/41
the bank is bidding for USm at Rs. 39.40 and
offering to sell USm at Rs. 39.41
 


` All foreign exchange calculations have to be worked
with care and accuracy and several rules have to be
kept in mind
` Chain rule- is used to attain comparison or ratio
between two quantities which are linked together
through another or other quantities. Equation in the
form of a chain is derived.
` Per cent and per mille- Per 100 units/per 1000 units
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` Arbitrage: Is an operation by which one can
make risk free profit by undertaking offsetting
transactions.
Can be in interest rates: borrow in one centre and
lend in another
Can be in exchange rates: Buy a currency in one
market and sell in another
` Arbitrage keeps exchange rates uniform in all
markets
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 V  

 


` Merchant rates: [uotes offered to merchants
(importers, exporters) by banks.
` Inter-bank rates: The rates quoted by banks for dealing
in the inter-bank market.
` Merchant quotations: In India all merchant quotations
for foreign currencies shall be in so many rupees for
one unit of foreign currency except for Japanese Yen,
Italian Lira and Belgian Franc (Rs/100 units of the
currency)
` All quotes are in four decimal places with the last two
digits in the multiple of 25
 
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` RBI has issued Authorised mealers (Am)
licences to banks, all India financial
institutions and a few co-operative banks to
undertake foreign exchange transactions in
India
` It has also issued Money Changer licences to a
large number of established firms, companies,
hotels, shops, etc.
 
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` Money changers help facilitate encashment of foreign
currencies of foreign tourists
` Entities authorised to buy and sell foreign currency
notes, coins and travellers͛ cheques are called full
fledged money changers
` Those authorised only to buy are called restricted
money changers
 
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` FEmAI (Foreign Exchange mealers͛ Association of India)
is a non-profit making body formed in 1958 with the
approval of RBI
` Its members are authorised dealers and it prescribes
guidelines and rules of the game for market
operations, merchant rates, quotations, delivery dates,
holidays, interest on defaults, etc.
` FEmAI also advises RBI on market related issues and
supplements RBI on strengthening the market