Foreign Exchange

Prepared by Jasmine. V St. Josephs College of Business Administration 22nd October, 2013.

Introduction
The paper explains Foreign Exchange System in a brief. It covers the main elements of Foreign Exchange market, its characteristics, and its functional mode. It also mentions the inception along with a description of certain important terms involved in Foreign Exchange. The conclusion highlights the Foreign Exchange systems in a simple way, putting up the roles of Forex altogether.

Learning
Foreign Exchange / Forex is a global exchange system which deals with currencies. Its a mode of currency exchange which covers all the countries and includes many financial institutions, governments, people, goods, services and banks as the main players. International trade is facilitated only through foreign exchange. Any transactions across the countries will be linked to Foreign Exchange market.

Foreign Exchange (Forex)

It is the system for dealing in the currencies of other countries. In simple words, it is the exchange of one currency for the other. Foreign exchange markets are place where it is done. Every currency is having a price for which it is exchanged with another currency, this is referred as Exchange rate. Foreign exchange determines the relative values of currencies. Foreign exchange reserves - contains the holdings of other countries. Foreign Exchange Controls - Governments impose controls on the purchase / sale of foreign currencies. Retail Foreign Exchange Platform Trading of Foreign Exchange by individuals using electronics trading platforms. Foreign Exchange Risk The risk which arises from the change in price of one currency against the other. International Trade Exchange of goods and services across the national boundaries Foreign Exchange Company A broker that offers currency exchange and international payments. 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.

International Banks are the main participants in Foreign Exchange. These banks will be using many financial institutions, who act as Dealers and involved in large quantities of currencies trading. These institutions work throughout without any weekends exception. In a foreign exchange transaction, a party purchases one currency by paying another currency. Forex formed during 1970s, when gradually switched to floating exchange rates from the previous exchange rate regime. Exchange rate regime remains fixed as per the Bretton woods system. This was the system followed uptil before World War II.

Characteristics of Forex:
It represents the largest asset class, in terms of the high liquidity involved Its geographical dispersion Its continuous operation, 24*7 The variety of factors affecting Exchange rates Low margins in the profits, compared to other markets of fixed income The use of leverages, to enhance profit and loss margins and w.r.to account size.

Conclusion
Forex helps the international trade and investment by enabling the currency conversion. It could be referred as the Ideal market of perfect competition, since no currency intervention is faced by any central banks. Due to the large and liquid currency markets, they are the most efficient financial markets. Forex is not a single exchange, but it is a network participants from all parts of the world.

References
http://en.wikipedia.org/wiki/Foreign_exchange_market

http://en.wikipedia.org/wiki/Foreign_exchange

https://www.google.co.in/search?q=foreign+exchange+meaning&oq=foreign+exchange+me&aqs=c hrome.1.69i57j0l5.6330j0j1&sourceid=chrome&espv=210&es_sm=93&ie=UTF-8

http://www.investopedia.com/terms/f/foreign-exchange.asp

http://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp