Professional Documents
Culture Documents
PRESENTATION
Foreign Exchange
Market
(FOREX MARKET)
By
Sejal Chavda
MBA sem 3
2
WATER FALLS
US DOLLORS
3
Terminology
Terminology
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Terminology
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Future Contracts:
FC is traded for only a limited number of currencies and
for a given delivery date. Amount of transaction and
maturity date is fixed by FE markets.
Foreign Currency Options:
A currency option is the right but not the obligation to Buy
(Call) or Sell (Put).
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Holder Writer
(Buyer) (Seller)
Languages of FE
Spot Market: Currencies are traded for immediate
delivery. Delivery is on the second following business
day (value date). E.g. Travelers going abroad
Forward Market: It is market for exchange of currencies in
the future, at a specified date in the future, typically
30, 60, or 90 days from now, and at a price (forward
exchange rate) that is agreed upon today. Delivery is at a
future value date. E, g. International business transactions.
Forward Markets exist only for the major currencies
Both forward rates and spot rates are published in News
papers.
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Languages of FE
Languages of FE
E= PA/PB
The exchange rate adjustment is a sequel to inflation. In case
of inflation
Exports will fall
Import price becomes cheaper
PPPT is useful in understanding
the long term movements in spot
rates; it has definite limitation over
the short term.
30
Fisher theory of FE
Fisher uses the interest rate rather than inflation rate
differentials to explain why exchange rates change
overtime but it is closely related to the PPP theory because
interest rates are often highly co-related with inflation
rates.
According to fisher effect, nominal risk free interest rates
contain a real rate of return and anticipated inflation
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