Forex markets
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Transcript of Forex markets
FOREX MARKETS
OUTLINE
Forex and Forex Markets
Investments and Risk
Management in Forex Market
FOREX AND FOREX MARKET
WHY FOREIGN INVESTMENTS?To take
advantage of economies of
scale
Foreign firms foster forward and backward
economic linkages.
Presence of foreign investors
creates a multiplier effect
Foreign investors are a boon to
government to raise revenue
and Employment Generation
Maintain a proper balance amongst the
factors of production by the supply of
scarce resources
The parent company enters
into newer financial markets
by its investments
outsideDevelops closer political
relationship between the
home and the host country
RISKS (EXPOSURE)
Transaction Risk• Measures the effect of
an exchange rate on outstanding obligations
Translation Risk• Refers to gains and
losses caused by translation of Forex Assets and Liabilities into Home Currency
Economic Risk• Extent to which the
economic value of the company changes due to change in Forex Rates.
THE FOREX MARKETForex
Exchange Market
• A Market for converting the currency of one country into the currency of another.
Exchange Rate
• The rate at which one currency is converted into another
• Bid – Ask = Spread
Types of Market
• Over the Counter Market
• Exchange Traded Market
Uses of Market
• To facilitate conversion of Currency
• To Trade investments of Foreign currency
• To manage Forex Exposure effectively
INSTRUMENTS IN THE FOREX MARKET
Currency Forwards –
OTC
Loans - OTC
Currency Swaps – OTC
Currency Futures -
RegulatedCurrency Exchange
Traded Funds - Regulated
Currency Options - Regulated
INVESTMENT AND DECISION MAKING IN THE FOREX MARKET
INVESTORS APPROACH TO FOREX RISK MANAGEMENT
Expected Payment/Receivable in FOREX
Apply Purchasing
Power Parity Theorem
Expected Gain
Hedge Using Futures or Forward Contract
Expected Loss
Apply Interest Rate Parity
Theorem and obtain expected
Forward Rate
Hedge using Futures
Hedge Using Forward
Contract/Swaps
High Risk Instrument =
Options
Low Risk and Investment Purpose = Exchange
Traded Funds
PURCHASING POWER PARITY
It is in the equilibrium the rate
of change in exchange equals
inflation rate differential.
PPP expresses the idea that a bundle of goods in one country should cost the same
in another country after exchange rates
are taken into account.
DECISION MAKING USING PPP
INTEREST RATE PARITYInterest rate parity has to do with the idea that money should earn an equal rate of
return.
Uses nominal interest rates to
analyze the relationship
between spot rate and a corresponding
forward rate
LEADING AND LAGGINGLeads and lags is the alteration of settlement of
forex transaction because of an
expected change in exchange rates.
Accelerating the transaction is
known as "leads", while slowing it
down is known as "lags".
Leads will result when firms or individuals making payments expect an
increase in the foreign-exchange rate, while lags
arise when the exchange rate is expected to fall.
COMPLIANCERBI Regulations• Pay/Receive Forex within Certain period• Maintain Separate NRI Account• Convert Forex to Home currency
FEMA Regulations• Permitted Current Account Transactions• Permitted Capital Account Transactions• Person Resident in India/Person Resident
outside IndiaIncome Tax Regulations• Complete and full disclosure of foreign assets
and foreign interest in IT Returns• Transfer Pricing and Scrutiny Assessments
THE WORLD IS IN YOUR HANDS
FRIENDS TEAM MEMBERSAnusha
Dharmaraj
Dalen D’Souza
Janardhan Gouda
Jyothi Vidyashr
eeRoopika Shetty
Shinoj Isac
Shravan Kumar
Sneha Rao
Bharath Rao
Thank You