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EXAMPLE

USA

France

THERE ARE ACTUALLY THREE WAYS THAT INSTITUTIONS, CORPORATIONS AND INDIVIDUALS
TRADE FOREX

Spot Market
MORE SPECIFICALLY, THE SPOT MARKET IS WHERE CURRENCIES ARE BOUGHT AND SOLD ACCORDING TO THE CURRENT PRICE. THAT PRICE, DETERMINED BY SUPPLY AND DEMAND, IS A REFLECTION OF MANY THINGS, INCLUDING CURRENT INTEREST RATES, ECONOMIC PERFORMANCE, SENTIMENT TOWARDS ONGOING POLITICAL SITUATIONS (BOTH LOCALLY AND INTERNATIONALLY), AS WELL AS THE PERCEPTION OF THE FUTURE PERFORMANCE OF ONE CURRENCY AGAINST ANOTHER. WHEN A DEAL IS FINALIZED, THIS IS KNOWN AS A "SPOT DEAL".

FORWARDS AND FUTURES MARKETS


Unlike

the spot market, the forwards and futures markets do not trade actual currencies. Instead they deal in contracts that represent claims to a certain currency type, a specific price per unit and a future date for settlement. In the forwards market, contracts are bought and sold OTC between two parties, who determine the terms of the agreement between themselves. In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the Chicago Mercantile Exchange. In the U.S., the National Futures Association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterpart to the trader, providing clearance and settlement.

TRADING CHARACTERISTICS
It is called as the over counter market (OTC) There is no single unified foreign exchange market There are rather a number of interconnected marketplaces where different currency instruments are traded. The main trading centers are in London, Newyork, Tokyo, Hongkong, Singapore, but banks throughout the world participate. There is little or no inside information in the foreign exchange market. Exchange rates fluctuations are usually caused by actual monetary flows as well as by expectations of change in monetary flows caused by changes in GDP growth, Inflation, interest rates, budget and trade deficits or surpluses and other macro-economic conditions.

Market size and Liquidity


Presently, the FOREX is one of the largest and liquid financial markets in the world. Traders include large banks, currency speculators, corporations, governments and other financial institutions. The average daily volume in the global foreign exchange and related market is continuously growing. Daily turnover was reported to be over US$ 3.2 trillion in Apr.2007 by the bank for international settlements. Of the daily global turnover ,trading in London accounted for 34.1% of the total. London by far the global center for foreign exchange. In second and third places respectively, trading in Newyork 16.6% and Tokyo 6.0%

Major participants

There are two tier system in the foreign exchange market. One involves the transactions between the ultimate customer and bank. Other consists of the transaction between the banks

Structure of the FOREX


The foreign exchange market in india consists of three tier system The first consists of transactions between RBI and the Authorized Dealers(ADs) Second tier is the inter bank market in which the Ads deal with each other Third tier consists of transactions between Ads and their corporate customers The daily turnover in the Indian foreign exchange market is currently estimated to be between USD 1.5 3 billion.

The most important center is Mumbai. Other active centers are Delhi, Kolkata, Chennai, Cochin and Bangalore

Trade currency mechanics


The main actors in the forex market are the primary market makers who trade on their own account and make a two-way bid offer market. They deal actively and continuously with each other and with their clients, central banks and sometimes with currency brokers. The ISO has developed three letter codes for all currencies which abbreviate the name of the country as well as currency.
For Example: USD GBP JPY

CONCLUSION