1. WHAT IS
“FOREX ?”

2. MEANING OF FOREIGN EXCHANGE
According to Hartly Withers, “ Foreign exchange is the art and science of international monetary exchange”
The forex market is the world’s largest financial market. Over $4 trillion dollars worth of currency are traded each day. The amount of money traded in a week is bigger than the entire annual GDP of the United States.
The main currency used for forex trading is the US dollar.

3. MEANING OF FOREIGN EXCHANGE
The term Foreign exchange implies two things: a)foreign currency and b) exchange rate
Foreign exchange generally refers to foreign currency, eg for india it is dollar, euro, yen, etc… &
the other part of foreign exchange is exchange rate which is the price of one currency in terms of the other currency.
Forex is the international market for the free trade of currencies. Traders place orders to buy one currency with another currency.

4. FOREX TRADE IN WORLD

5. FOREIGN EXCHANGE MARKET
Foreign exchange market is that market in which national currencies are traded for one another..
The major participants in this market are commercial banks, forex brokers, and authorised dealers and the monetary authorities.
Besides, transfer of funds form one country to another , speculation is an important dimension of foreign exchange market.
Its where money in one currency is exchanged for another

6. ADVANTANGES IN FOREIGN MARKET
It’s already the world’s largest market and it’s still growing quickly
It makes extensive use of information technology – making it available to everyone
Traders can profit from both strong and weak economies
Trader can place very short-term orders – which are prohibited in some other markets
The market is not regulated
Brokerage commissions are very low or non-existent
The market is open 24 hours a day during weekdays

7. TERMS RELATED TO FOREIGN EXCHANGE
Foreign exchange reserves- holdings of other countries' currencies
Foreign exchange controls- controls imposed by a government on the purchase/sale of foreign currencies
Retail foreign exchange platform- speculative trading of foreign exchange by individuals using electronic trading platforms
Foreign exchange risk- arises from the change in price of one currency against another
International trade- the exchange of goods and services across national boundaries
Foreign exchange company- a broker that offers currency exchange and international payments
Bureau de change- a business whose customers exchange one currency for another
Currency pair- the quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market
Digital currency exchanger- market makers which exchange fiat currency for electronic money

8. EXCHANGE RATES
According to haines, “Exchange rate is the price of the currency of a country can be exchanged for the number of units of currency of another country.”
Exchange rate is that rate at which one unit of currency of a country can be exchanged for the number of units of currency of another country.
It’s the the price for which one currency is exchanged for another

9. FACTORS INFLUENCING EXCHANGE RATES
As with any market, the forex market is driven by supply and demand:
If buyers exceed sellers, prices go up
If sellers outnumber buyers, prices go down
The following factors can influence exchange rates:
National economic performance
Central bank policy
Interest rates
Trade balances – imports and exports
Political factors – such as elections and policy changes
Market sentiment – expectations and rumours
Unforeseen events – terrorism and natural disasters
Despite all these factors, the global forex market is more stable than stock markets; exchange rates change slowly and by small amounts.

10. TYPES OF
EXCHANGE RATES

11. Fixed and Floating exchange rates
Fixed exchange rate is the official rate set by the monetary authorities of the Governance for one or more currencies.
Under floating exchange rate, the value of the currency is decided by supply and demand factor.

12. Direct and indirect exchange rates
Direct method - Under this, a given number of units of local currency per unit of foreign currency is quoted. They are designated as direct/certain rates because the rupee cost of single foreign currency unit can be obtained directly. Direct quotation is also called home currency quotation.
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

13. Buying and selling Exchange rates are quoted as two way quotes –
for purchase
and for sale
transactions by the Bank

14. Spot and forward
The delivery under a foreign exchange transaction can be settled in one of the following ways
Ready or cash – To be settled on the same day
Tom – To be settled on the day next to the date of transaction
Spot – To be settled on the second working day from the date of contract
Forward – To be settled at a date farther than the spot date

15. Theories of exchange rate determination
Meaning:
Theories which determine the prices of forex rate considering inflation, interest rate, and elasticity of price etc..
Methods:
Long run theory
Short run theory

16. LONG RUN THEORY OF EXCHANGE RISK DETERMINATION
This are the theories which predominately take into account the fundamental changes of economy.
Here fundamental changes refers to the change which are going to change the economic performance of the economy Purchasing power for all times to come.
Types of theory:
Purchasing power parity.
1) Absolute purchasing power parity.
2) Relative purchasing power parity.
Interest Rate parity
1) Covered Interest Rate parity
2) Uncovered Interest Rate parity

17. Short Run theory of exchange rate determination
This theories are based more on current information or immediate performance of economic variables.
This theories try to take into account the short run factor which may be eliminated in the long run.

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