Você está na página 1de 42

Page 1 of 42

A PROJECT REPORT ON

EURO CURRENCY MARKET


SUBMITTED IN PARTIAL FULFILMENT OF THE
REQUIREMENT FOR


MASTER OF COMMERCE (M.COM)
ACCOUNTANCY GROUP
SEMESTER- I

IN THE SUBJECT

ECONOMICS OF GLOBAL TRADE AND FINANCE


TO
UNIVERSITY OF MUMBAI


BY
JAYESH. KORNA
ROLL NO. 13A116
2013-2014




Page 2 of 42

UNDER THE GUIDANCE OF
PROF SUNANDA BHATT


CHETANAS
H. S. COLLEGE OF COMMERCE & ECONOMICS
& SMT KUSUMTAI CHAUDHARI COLLEGE OF ARTS
BANDRA (EAST), MUMBAI 400 051






DECLARATION




I JAYESH KORNA, student of Master of Commerce (M.Com)
Accountancy Group Semester- I, Roll No. 13A116 of Chetanas H. S.
College of Commerce & Economics & Smt. K. C. College of Arts,
(CHETANAS M. COM. CENTRE) Bandra (East), Mumbai 400
051, hereby declare that I have completed the project on EURO
CURRENCY MARKETin the subject ECONOMICS OF GLOBAL
TRADE AND FINANCE for the Academic Year 2013-14.





Page 3 of 42




_________________________
JAYESH. KORNA

Date: 27
th
January, 2014













CERTIFICATE



I, PROF. SUNANDA BHATT hereby certify that JAYESH. KORNA
, Roll No 13A116 of M.Com. Semester I of Chetanas M.Com Centre,
has successfully completed project on EURO CURRENCY
MARKETin the subject ECONOMICS OF GLOBAL TRADE AND
FINANCE for the Academic Year 2013-14.


Page 4 of 42









________________ _________________
Internal Guide External Guide




________________ __________________
Coordinator Principal















Page 5 of 42

ACKNOWLEDGEMENT


At this juncture, I would like to express my sincere gratitude to those
who have helped me directly or indirectly during this project.
My sincere thanks to PROF SUNANDA BHATT for his whole
hearted support, constructive advice and practical guidance. I would
also like to thank the college library for the reference material and
information used.




_________________________

JAYESH. KORNA















Page 6 of 42


SR. NO. PARTICULARS PAGE
NO.
1 SUMMARY OF THE SYSTEM 6-8
2 NEED FOR THE STUDY 9-10
3 METHODOLOGY 11
4 SOURCES OF DATA COLLECTION 12-13
5 INTRODUCTION TO THE STUDY 14-16
6 MARKET PARTICIPANTS 17-20
7 TRADING CHARACTERSTICS 21-22
8 DETERMINANTS OF FOREIGN EXCHANGE
RATES
23-25
9 FINANCIAL INSTRUMENTS 26-28
10 IMPACT OF CURRENCY EXCHANGE IN
INDIA
29
11 PROBLEM 30-31
12 THE SIX W 32
13 EXISTING SYSTEM 33
14 SCOPE OF THE SYSTEM 34
15 SUGGESTIONS 35-38
16 BIBLIOGRAPHY 39


Page 7 of 42

INDEX












SUMMARY OF THE SYSTEM
Forex, is definitely an exchange that allows investors to trade national
currencies over the forex trading. This is the worlds largest industry for
currency, using the Dollar, ranging from 1 ? 2 TRILLION dollars are
traded upon this market on a regular basis. This type of trade is often
performed online or around the telephone. By using benefit of the
world wide web, you are enabling yourself to you could make your
investments in a very reliable, easy, safe and fast way.
Some investors are able to enjoy returns of about thirty percent
monthly, this requires a good deal of experience to find this sort of
enormous roi. The foreign currency market does not have one specific
place of trade like lots of the other markets do, for this reason alone is
why many of the trade is conducted by internet, fax, or telephone. To
start with for currency trade hasnt been all of that popular, we were


Page 8 of 42

holding bringing in only about seventy billion dollars each day,
together with the invention of Forex, that number grew massively.
.Certainly, the currencies tend not to only handle the American dollar,
these currencies might be translated to over 5,000 currency institutions
world wide, that include, commercial companies, large brokers,
international banks, and government banks. Many major countries have
forex trading centers for instance, Frankfurt, London, New York, Paris,
Hong Kong, Tokyo, and Bombay to name a few.
When trading online there are several benefits for example, to be able
to trade or track your investments whenever day or night, from
anywhere inside the world that gives a web connection. Another added
benefit, is always that some online exchange sites permit you to get
started with a little investment, termed as a mini account, some with as
little as two-hundred dollars. With internet trading, the trade is instant.
After you trade offline you should deal with paperwork, with internet
trading there isnt any paperwork involved.
The field of the online world, has allow us do lots of things with just a
phone, where else is it possible to bank, trade, talk to your friends,
research your investments and earn income all simultaneously? Make
the internet work in your own interest by implementing stock trading
online for your portfolio. There?s a whole whole world of money
awaiting you to earn along with your online investments, and it?s all
offered at the press of the mouse button button.
As the world looks up to, India for investing in many sectors the
country is beginning to see some good trading via Internet through
forex.


Page 9 of 42

Forex in India today is dependent on the reserves and how Reserve
Bank of India deals with currency fluctuations with respect to the
rupee.
However, the history of forex in India shows that for the last twenty
years there has been a regular deficit. The total imports until today
exceed the exports. With the industrialization and liberalization the
situation of forex in India has changed rather geometrically.
Being agricultural country earlier exports were confined to agricultural
produces. It was with the help of IMF that imports in India improved.
Despite so much of infrastructure, improvement the country constantly
faces transport and power cut problems. Forex in India has been helped
by invisible trading services like shipping, insurances, banking various
investments, perking of tourism, IT etc. The cost of borrowing from
international banks is very high.
To recap:
The forex market represents the electronic over-the-counter markets
where currencies are traded worldwide 24 hours a day, five and a half
days a week. The typical means of trading forex are on the spot, futures
and forwards markets.
Currencies are "priced" in currency pairs and are quoted either directly
or indirectly.
Currencies typically have two prices: bid (the amount that the market
will buy the quote currency for in relation to the base currency); and
ask (the amount the market will sell one unit of the base currency for in
relation to the quote currency). The bid price is always smaller than the
ask price.


Page 10 of 42

Unlike conventional equity and debt markets, forex investors have
access to large amounts of leverage, which allows substantial positions
to be taken without making a large initial investment.
The adoption and elimination of several global currency systems over
time led to the formation of the present currency exchange system, in
which most countries use some measure of floating exchange rates.
Governments, central banks, banks and other financial institutions,
hedgers, and speculators are the main players in the forex market.
The main economic theories found in the foreign exchange deal with
parity conditions such as those involving interest rates and inflation.




Page 11 of 42

NEED FOR THE STUDY

Minimal or no commissions - There are no clearing fees, no exchange
fees, no government fees and no brokerage fees.


Easy access if we compare the money you need on the market in
comparison with the amount needed for entering the stock, options or
futures market, its a huge difference. The amount of capital is very low
and it allows numerous types of people to easily enter the foreign
exchange market.


No middlemen spot currency trading is decentralized and eliminates
middlemen, allowing you to trade directly.


Lots of free courses and demo possibilities On the internet we can
find huge opportunities for learning how the Forex market works and
what we need to become a good trader. Also, most online Forex brokers
offer demo accounts to practice trading and build our skills, using real-
time charts and news feeds. They are more valuable than we could even
imagine and, before starting your real money on the market, try to see if
we are built and ready for it by practicing with these types of software.


Time and location flexibility the market is open 24 hours each day,
so we dont have to match our schedule with the one of the market. It


Page 12 of 42

doesnt require a full-time engagement and we can choose the hours
that suit our best. Also, we can operate from any corner of the world, as
long as we have an Internet connection.


Low transaction costs the transaction cost, determined by the
bid/ask spread, is usually less than 0.1%, and it can go even lower in
the case of large dealers.



A high liquidity market the market is huge, so is extremely liquid.
Around 4 trillion dollars are exchanged every day, according to the
latest figures released by the Bank of International Settlements (BIS).
That becomes an advantage, as we dont have to struggle so much until
we will find someone who wants to buy our currency or sell we one.
We cant get stuck and, by using features like stop lose, we will close
your position automatically, while not even being in front of the
computer.


Leverage with a little investment you can move large amounts of
money. Leverage gives the trader the ability to make nice profits and
keep risk capital to a minimum.

No forced deadlines no one and no rule is forcing we to close a
position. we can stay open as long as we consider necessary.

METHODOLOGY


Page 13 of 42


RESEARCH DESIGN

A research design is a framework or blueprint for conducting the
marketing research project.It specifies the details of the procedures
necessary for obtaining the information needed to structure and solve
marketing research problems.



Exploratory Design:-

In exploratory design first collect the information about research.
Understand foreign exchange market
About foreign exchange market in India
About Indian economy
Impact of currency market in Indian economy
Collection of primary data from past research.
Then collection secondary data from Books, Magazines, Internet etc.
Then start qualitative research in this the interview.





SOURCES OF DATA COLLECTION

SECONDARY SOURCES OF DATA


Page 14 of 42

Secondary data is data collected by someone other than the user.
Common sources of secondary data for social science include censuses,
surveys, organizational records and data collected through qualitative
methodologies or qualitative research. Primary data, by contrast, are
collected by the investigator conducting the research.

INTERNET
The Internet is a global system of interconnected computer networks
that use the standard Internet Protocol Suite (TCP/IP) to serve billions
of users worldwide. It is a network of networks that consists of millions
of private, public, academic, business, and government networks, of
local to global scope, that are linked by a broad array of electronic,
wireless and optical networking technologies. Internet is being used for
collecting and taking out various information on currency markets.


CASE STUDY METHOD
A case study is a research design framework common in social science.
It is based on an in-depth investigation of a single individual, group, or
event. Case studies may be descriptive or explanatory. The latter type is
used to explore causation in order to find underlying principles.
[1][2]

They may be prospective, in which criteria are established and cases
fitting the criteria are included as they become available, or
retrospective, in which criteria are established for selecting cases from
historical records for inclusion in the study.a case study of the
organization was obtained and based on that information was extracted.




Page 15 of 42

MAGAZINES, JOURNALS AND ARTICLES
Magazines, journals and articles are used as a source of information for
carrying out research work on currency market. Information has been
extracted from these sources.

















Introduction to the Study

1. Concepts
Introduction
Currency exchange rate is the value of a foreign currency relative to
domestic currency. T he exchange of currencies is done in the foreign


Page 16 of 42

exchange market, which is one of the biggest financial markets. The
participants of the market are banks, corporations, exporters, importers
etc. A foreign exchange contract typically states the currency pair, the
amount of the contract,the agreed rate of exchange etc.



CHART 1




Exchange Rate
A Currency exchange deal is always done in currency pairs, for
example, US Dollar Indian Rupee contract (USD INR); British
Pound INR (GBP - INR), Japanese Yen U.S. Dollar
(JPYUSD),U.S. Dollar Swiss Franc (USD-CHF) etc. Some of the
liquid currencies in the world are USD, JPY, EURO, GBP, and CHF
and some of the liquid currency contracts are on USD-JPY,USD-
EURO, EURO-JPY, USD-GBP, and USD-CHF.


Page 17 of 42

In a currency pair, the first currency is referred to as the base currency
and the second currency is referred to as the counter/terms/quote
currency. The exchange rate tells the worth of the base currency in
terms of the terms currency, i.e. for a buyer, how much of the terms
currenc y must be paid to obtain one unit of the base currency. For
example, a USD-INR rate of
Rs. 48.0530 implies that Rs. 48.0530 must be paid to obtain one US
Dollar. Foreign exchange prices are highly volatile and fluctuate on a
real time basis. In foreign exchange contracts, the price fluctuation is
expressed as appreciation/depreciation or the strengthening/weakening
of a currency relative to the other. A change of USD-INR rate from Rs.
48 to Rs. 48.50 implies that USD has strengthened/ appreciated and the
INR has weakened/depreciated, since a buyer of USD will now have to
pay more INR to buy 1 USD than before.
The primary purpose of the foreign exchange is to assist international
trade and investment, by allowing businesses to convert one currency to
another currency.
The Currency exchange market is unique because of
its huge trading volume representing the largest asset class in the world
leading to high liquidity;
its geographical dispersion;
its continuous operation: 24 hours a day except weekends, i.e. trading
from 20:15 GMT on Sunday until 22:00 GMT Friday;
the variety of factors that affect exchange rates;
the low margins of relative profit compared with other markets of fixed
income; and


Page 18 of 42

the use of leverage to enhance profit and loss margins and with respect
to account size.



















MARKET PARTICIPANTS
Banks
The interbank market caters for both the majority of commercial
turnover and large amounts of speculative trading every day. Many
large banks may trade billions of dollars, daily. Some of this trading is
undertaken on behalf of customers, but much is conducted by


Page 19 of 42

proprietary desks, which are trading desks for the bank's own account.
Until recently, foreign exchange brokers did large amounts of business,
facilitating interbank trading and matching anonymous counterparts for
large fees. Today, however, much of this business has moved on to
more efficient electronic systems. The broker squawk box lets traders
listen in on ongoing interbank trading and is heard in most trading
rooms, but turnover is noticeably smaller than just a few years ago.
Commercial companies
An important part of this market comes from the financial activities of
companies seeking foreign exchange to pay for goods or services.
Commercial companies often trade fairly small amounts compared to
those of banks or speculators, and their trades often have little short
term impact on market rates. Nevertheless, trade flows are an important
factor in the long-term direction of a currency's exchange rate. Some
multinational companies can have an unpredictable impact when very
large positions are covered due to exposures that are not widely known
by other market participants.
Central banks
National central banks play an important role in the foreign exchange
markets. They try to control the money supply, inflation, and/or interest
rates and often have official or unofficial target rates for their
currencies. They can use their often substantial foreign exchange
reserves to stabilize the market. Nevertheless, the effectiveness of
central bank "stabilizing speculation" is doubtful because central banks
do not go bankrupt if they make large losses, like other traders would,
and there is no convincing evidence that they do make a profit tra


Page 20 of 42

Forex Fixing
Forex fixing is the daily monetary exchange rate fixed by the national
bank of each country. The idea is that central banks use the fixing time
and exchange rate to evaluate behavior of their currency. Fixing
exchange rates reflects the real value of equilibrium in the forex
market. Banks, dealers and online foreign exchange traders use fixing
rates as a trend indicator.
Hedge funds as speculators
About 70% to 90% of the foreign exchange transactions are
speculative. In other words, the person or institution that bought or sold
the currency has no plan to actually take delivery of the currency in the
end; rather, they were solely speculating on the movement of that
particular currency. Hedge funds have gained a reputation for
aggressive currency speculation since 1996. They control billions of
dollars of equity and may borrow billions more, and thus may
overwhelm intervention by central banks to support almost any
currency, if the economic fundamentals are in the hedge funds' favor.

Investment management firms
Investment management firms (who typically manage large accounts on
behalf of customers such as pension funds and endowments) use the
foreign exchange market to facilitate transactions in foreign securities.
For example, an investment manager bearing an international equity
portfolio needs to purchase and sell several pairs of foreign currencies
to pay for foreign securities purchases.


Page 21 of 42

Retail foreign exchange traders
Individual Retail speculative traders constitute a growing segment of
this market with the advent of retail forex platforms, both in size and
importance. Currently, they participate indirectly through brokers or
banks. Retail brokers, while largely controlled and regulated in the
USA by the CFTC and NFA have in the past been subjected to periodic
foreign exchange scams.
[11][12]
To deal with the issue, the NFA and
CFTC began (as of 2009) imposing stricter requirements, particularly in
relation to the amount of Net Capitalization required of its members
Non-bank foreign exchange companies
Non-bank foreign exchange companies offer currency exchange and
international payments to private individuals and companies. These are
also known as foreign exchange brokers but are distinct in that they do
not offer speculative trading but rather currency exchange with
payments (i.e., there is usually a physical delivery of currency to a bank
account).
Money transfer/remittance companies and bureau de changes
Money transfer companies/remittance companies perform high-volume
low-value transfers generally by economic migrants back to their home
country. In 2007, the Aite Group estimated that there were $369 billion
of remittances (an increase of 8% on the previous year). The four
largest markets (India, China, Mexico and the Philippines) receive $95
billion. The largest and best known provider is Western Union with
345,000 agents globally followed by Exchange. Bureau or currency
transfer companies provide low value foreign exchange services for
travelers. These are typically located at airports and stations or at tourist


Page 22 of 42

locations and allow physical notes to be exchanged from one currency
to another. They access the foreign exchange markets via banks or non
bank foreign exchange companies.



























Page 23 of 42






TRADING CHARACTERSTICS
There is no unified or centrally cleared market for the majority of FX
trades, and there is very little cross-border regulation. Due to the over-
the-counter (OTC) nature of currency markets, there are rather a
number of interconnected marketplaces, where different currencies
instruments are traded. This implies that there is not a single exchange
rate but rather a number of different rates (prices), depending on what
bank or market maker is trading, and where it is. In practice the rates
are often very close, otherwise they could be exploited by arbitrageurs
instantaneously. Due to London's dominance in the market, a particular
currency's quoted price is usually the London market price.

Types of Traders in Derivative Markets

Hedgers
Hedgers trade with an objective to minimize the risk in trading or
holding the underlying securities. Hedgers willingly bear some costs in
order to achieve protection against unfavorable price changes.




Page 24 of 42


Speculators
Speculators use derivatives to bet on the future direction of the markets.
They take calculated risks but the objective is to gain when the prices
move as per their expectation. Based on the duration for which
speculators hold a position they are further be classified as scalpers
(very short time, may be defined in minutes), day traders (one trading
day) and position traders (for a long period may be a week, a month or
a year).

Arbitrageurs
Arbitrageurs try to make risk-less profit by simultaneously entering into
transactions in two or more markets or two or more contracts. They
profit from market inefficiencies by making simultaneous trades that
offset each other thereby making their positions risk-free. For example,
they try to benefit from difference in currency rates in two different
markets.














Page 25 of 42

DETERMINANTS OF FOREIGN EXCHANGE RATES
Economic factors
These include: (a)economic policy, disseminated by government
agencies and central banks, (b)economic conditions, generally revealed
through economic reports, and other economic indicators.
Economic policy: comprises government fiscal policy
(budget/spending practices) and monetary policy (the means by which a
government's central bank influences the supply and "cost" of money,
which is reflected by the level of interest rates).

Government budget deficits or surpluses: The market usually reacts
negatively to widening government budget deficits, and positively to
narrowing budget deficits. The impact is reflected in the value of a
country's currency.

Balance of trade levels and trends: The trade flow between countries
illustrates the demand for goods and services, which in turn indicates
demand for a country's currency to conduct trade. Surpluses and
deficits in trade of goods and services reflect the competitiveness of a
nation's economy. For example, trade deficits may have a negative
impact on a nation's currency.

Inflation levels and trends: Typically a currency will lose value if
there is a high level of inflation in the country or if inflation levels are
perceived to be rising. This is because inflation erodes purchasing
power, thus demand, for that particular currency. However, a currency
may sometimes strengthen when inflation rises because of expectations


Page 26 of 42

that the central bank will raise short-term interest rates to combat rising
inflation.

Economic growth and health: Reports such as GDP, employment
levels, retail sales, capacity utilization and others, detail the levels of a
country's economic growth and health. Generally, the more healthy and
robust a country's economy, the better its currency will perform, and
the more demand for it there will be.


Productivity of an economy: Increasing productivity in an economy
should positively influence the value of its currency. Its effects are
more prominent if the increase is in the traded sector.


Political conditions
Internal, regional, and international political conditions and events can
have a profound effect on currency markets. All exchange rates are
susceptible to political instability and anticipations about the new ruling
party. Political upheaval and instability can have a negative impact on a
nation's economy. For example, destabilization of coalition
governments in Pakistan and Thailand can negatively affect the value
of their currencies. Similarly, in a country experiencing financial
difficulties, the rise of a political faction that is perceived to be fiscally
responsible can have the opposite effect. Also, events in one country in
a region may spur positive/negative interest in a neighboring country
and, in the process, affect its currency.



Page 27 of 42


Market psychology
Market psychology and trader perceptions influence the foreign
exchange market in a variety of ways:
Flights to quality: Unsettling international events can lead to a "flight
to quality", a type of capital flight whereby investors move their assets
to a perceived "safe haven". There will be a greater demand, thus a
higher price, for currencies perceived as stronger over their relatively
weaker counterparts. The U.S. dollar, Swiss franc and gold have been
traditional safe havens during times of political or economic
uncertainty
.


Long-term trends: Currency markets often move in visible long-term
trends. Although currencies do not have an annual growing season like
physical commodities, business cycles do make themselves felt. Cycle
analysis looks at longer-term price trends that may rise from economic
or political trends
.


"Buy the rumor, sell the fact": This market truism can apply to many
currency situations. It is the tendency for the price of a currency to
reflect the impact of a particular action before it occurs and, when the
anticipated event comes to pass, react in exactly the opposite direction.
This may also be referred to as a market being "oversold" or
"overbought".

Economic numbers: While economic numbers can certainly reflect
economic policy, some reports and numbers take on a talisman-like


Page 28 of 42

effect: the number itself becomes important to market psychology and
may have an immediate impact on short-term market moves. "What to
watch" can change over time. In recent years, for example, money
supply,

FINANCIAL INSTRUMENTS
Spot
A spot transaction is a two-day delivery transaction (except in the case
of trades between the US Dollar, Canadian Dollar, Turkish Lira, EURO
and Russian Ruble, which settle the next business day), as opposed to
the futures contracts, which are usually three months. This trade
represents a direct exchange between two currencies, has the shortest
time frame, involves cash rather than a contract; and interest is not
included in the agreed-upon transaction.

Forward
One way to deal with the foreign exchange risk is to engage in a
forward transaction. In this transaction, money does not actually change
hands until some agreed upon future date. A buyer and seller agree on
an exchange rate for any date in the future, and the transaction occurs
on that date, regardless of what the market rates are then. The duration
of the trade can be one day, a few days, months or years. Usually the
date is decided by both parties. Then the forward contract is negotiated
and agreed upon by both parties.




Page 29 of 42

Swap
The most common type of forward transaction is the FX swap. In an
FX swap, two parties exchange currencies for a certain length of time
and agree to reverse the transaction at a later date. These are not
standardized contracts and are not traded through an exchange.


Future
Futures are standardized and are usually traded on an exchange created
for this purpose. The average contract length is roughly 3 months.
Futures contracts are usually inclusive of any interest amounts.

Option
A foreign exchange option (commonly shortened to just FX option) is a
derivative where the owner has the right but not the obligation to
exchange money denominated in one currency into another currency at
a pre-agreed exchange rate.

Speculation
Futures contracts can also be used by speculators who anticipate that
the spot price in the future will be different from the prevailing futures
price. For speculators, who anticipate a strengthening of the base
currency will hold a long position in the currency contracts, in order to
profit when the exchange rates move up as per the expectation. A
speculator who anticipates a weakening of the base currency in terms of


Page 30 of 42

the terms currency, will hold a short position in the futures contract so
that he can make a profit when the exchange rate moves down.

Controversy about currency speculators and their effect on currency
devaluations and national economies recurs regularly. Nevertheless,
economists including Milton Friedman have argued that speculators
ultimately are a stabilizing influence on the market and perform the
important function of providing a market for hedgers and transferring
risk from those people who don't wish to bear it, to those who do. Other
economists such as Joseph Stieglitz consider this argument to be based
more on politics and a free market philosophy than on economics.
Large hedge funds and other well capitalized "position traders" are the
main professional speculators. According to some economists,
individual traders could act as "noise traders and have a more
destabilizing role than larger and better informed actors.
Currency speculation is considered a highly suspect activity in many
countries. While investment in traditional financial instruments like
bonds or stocks often is considered to contribute positively to economic
growth by providing capital, currency speculation does not; according
to this view, it is simply gambling that often interferes with economic
policy

Risk Aversion in FOREX
Risk aversion in the forex is a kind of trading behavior exhibited by the
foreign exchange market when a potentially adverse event happens
which may affect market conditions. This behavior is caused when risk


Page 31 of 42

averse traders liquidate their positions in risky assets and shift the funds
to less risky assets due to uncertainty.
[

In the context of the forex market, traders liquidate their positions in
various currencies to take up positions in safe-haven currencies, such as
the US Dollar. Sometimes, the choice of a safe haven currency is more
of a choice based on prevailing sentiments rather than one of economic
statistics.




IMPACT OF CURRENCY EXCHANGE IN INDIA

GDP & GNP

The Gross Domestic Product (GDP) in India expanded 7.8 percent in
the first quarter of 2011 over the same quarter, previous year. From
2004 until 2010, India's average quarterly GDP Growth was 8.40
percent reaching an historical high of 10.10 percent in September of
2006 and a record low of 5.50 percent in December of 2004. India's
diverse economy encompasses traditional village farming, modern
agriculture, handicrafts, a wide range of modern industries, and a
multitude of services.
India's economy rose 7.8 percent in the three months ended March 31
from a year earlier, after a revised 8.3 percent gain in the previous
quarter, the Central Statistical Office said in a statement in New Delhi
on May 31. Thats the slowest pace in five quarters.


Page 32 of 42

Manufacturing rose 5.5 percent in the three months through March
from a year earlier, compared with a 6 percent gain in the previous
quarter. Finance and insurance services grew 9 percent after a 10.8
percent jump in the previous quarter. Farm output rose 7.5 percent
while mining advanced 1.7 percent, according to the report.The sectors
which registered significant growth rates are agriculture, forestry and
fishing at 7.5 percent, electricity, gas and water supply at 7.8 percent,
construction at 8.2 percent, trade,hotels, transport and communication
at 9.3 percent, and financing, insurance, real estate and business
services at 9.0 percent.


PROBLEM
Differences between retail and wholesale pricing around two-thirds
of the trades are made between dealers and large organizations such as
hedge funds and banks. They trade at wholesale prices, while the
investor trades at a retail price. Like this it can become a challenge to
compete against bigger organization that start with a lower entry point
and sell more profitably.

Zero Sum Game- dont expect necessarily to win lots of money.
Remember that for someone to get rich, another has to loose money on
the Forex market. On the web there are many unscrupulous people who
are dedicated to defraud honest people. It is important when investing
your money to have the support of a trusted broker; they usually must
be properly registered, including some requests that the brokerage firms


Page 33 of 42

have made at least 100 successful operations.

Lack of complete knowledge & Skills Without completely knowing
the markets rules and without having patience, your investment might
very well soon vanish.

Leverage: As mentioned, you can take a leverage, which will allow
you to enter the market with a larger capital, if the operations are
successful, and use good strategies you can obtain better returns but if
the opposite happens, you may lose a lot of your money. leverage is a
double edged sword.

complex nature: the technical analysis techniques are complex as so is
the implementation of certain strategies requires much training and
education. The currency exchange rates are influenced by a variety of
factors, which may fluctuate over time.

Cannot keep track for 24 hours: It is quite impossible for an
individual trader to keep track of the forex market throughout the day.

High volatility: High volatile forex markets can cause huge losses if
you dont know how to deal with it. Therefore, it is advisable that you
opt for a forex trading course that will help you to know how to make
profit in foreign exchange trading.

Possibility of scams while trading in forex- In a quite common scam,
investors are promised significant amount of profit in exchange of an
initial investment. However, the investors money is not placed in the
forex market; instead, the con artists simply run away with the money.


Page 34 of 42

However, you can avoid being a victim if you gather a little knowledge
about forex trading before starting to trade on your own.

Confined to only certain areas-currency market are confined to only
certain areas i.e only urban areas.Still in rural areas people are unaware
of these markets.These areas do not have even footprints of the
currency markets.

Theoretical data are taken from internet; possibilities of wrong data can
take in the report.

Respondent could provide wrong data.

THE SIX W

1. Who: who are respondent?
The accounts holder in SMC Global Securities and other people who
are trading in Forex Market

2. What: what information should be obtained from the respondent?
A wide variety of information could be obtained, including:
a. What are income criteria?
b. In which financial instrument they invest in?
c. Factors they determine before investing.

3. When: when should the information is obtained from the
respondent?
10.00a.m. to 4.00p.m.



Page 35 of 42

4. Where: where should the respondent is contacted to obtain the
required information?
The information was collected from the SMC Global Securities, pusa
road,New Delhi.

5. Why: why are we obtaining information from the respondent?
It is the necessary step to determine the factors of currency market
impact in Indian economy because of the research project assigned.

6. Way: In what way are we going to obtain information from the
respondent?
a. Personal interview with questioners
b. Expert opinion
EXISTING SYSTEM
The global increase in trade and foreign investments has led to inter-
connection of many national economies. This and the resulting
fluctuations in exchange rates, has created a huge international market
for Forex rendering investors another exciting avenue for trading. The
Forex market offers unmatched potential for profitable trading in any
market condition or any stage of the business cycle.
Indian Forex Market
In terms of daily turnover in 2010, India is the 16th largest market in
the world. Indias market share in World FX Market increased from 0.1
% in 1998 to 0.9% in 2010. As per Latest RBI Data, Daily FX Indian
Market volumes are $50 Billion in 2009.


Page 36 of 42

Indian Currency Futures Market Present Status
Currency Futures Trading was launched in India on 29th August, 2008
on NSE. NSE & MCXSX are the major 2 exchanges presently.
United Stock Exchange of India is the upcoming exchange promoted
by Bank of India, Federal Bank, MMTC & Jaypee Capital along with 9
other banks. The FX market in India is regulated by The Foreign
Exchange Management Act, 1999 or FEMA, Presently Daily Turnover
on both exchanges averages Rs. 35000 crores. Banks are active
participants on the exchanges. NRIs & FIIs are not permitted to trade as
of now. Currency markets offer investors a step into the world of Forex.
The global increase in trade and foreign investments has led to inter-
connection of many national economies. This and the resulting
fluctuations in exchange rates, has created a huge international market
for Forex rendering investors another exciting avenue for trading. The
Forex market offers unmatched potential for profitable trading in any
market condition or any stage of the business cycle.
SCOPE OF THE SYSTEM
Forex market also known as foreign exchange or currency exchange is
a new concept for India. It is a p institution, large companies, financial
brokers and individuals. In the recent years forex trading has gained
tremendous popularity. These are unique by its large volume, extreme
liquidity, 24 hour trading availability and various types of options
available.

Indian forex market is small when compared with other developed
countries but with the multinationals coming up and new government
policies the path of expansion is on its new heights. The Indian
government has now open up new ways to trade and regulated this


Page 37 of 42

market as well. India has shown great rise in its forex turnover in last
three years. People now feel comfortable to trade in and exit from the
market.

Indias share in world forex market has shown growth of 0.9% last year
and will grow further. It is the fastest growth of any country. The
growth rates of developed countries is much lower compared with
developing countries.UK and US have shown the lowest change in
contribution of foreign exchange. In India people are now more aware
of the kinds of trading like derivative markets, options, swapping,
hedging etc. The most important characteristic of forex is the impact on
various currencies by the change in one currency rates. Any economic
activity in world affects the forex market immediately.

The three fold growth of forex trades in India has proved the upcoming
power and will soon be called as a investment hub. The scope of forex
market is very huge in India as it is in its initial stage. New
developments are in row and very soon Indian market would emerge as
a high potential foreign exchange market place.

SUGGESTIONS
Know what moves currency markets. Like any asset class, there are a
number of factors that drive a currency's performance. A countrys
macroeconomic situation can have a major influence--economic data
releases, policy decisions, and political events can change an
economists outlook on the country, and therefore its currency. There
are also technical factors such as interest rates, equity markets, and


Page 38 of 42

international trade, which may also have an impact. Spend time getting
to know these.

Understand the strategies. Yes, there is a method to the madness. As
a trader, you need to be aware of three crucial trading strategies, which
are often used by currency traders: the carry, momentum, and value
trade. Momentum tracks the direction of currency markets; the carry
strategy sees investors selling currencies with low interest rates and
buying those with high rates; and the valuation strategy takes a position
based on the investors view of a currencys value. However, the
strategies that you use are up to you.


Decide on trading strategy. Are you macro-driven or a technician? In
currency trading, as in any form of active investment, it is important to
understand how you arrive at your investment decisions. Are you
someone who looks at the big picture (fundamental economic data such
as inflation, or central bank decisions) and makes a call on how that
may affect a currency pair? If so, then youre macro-driven. If you are
someone who looks at the changes to a currency pair and then tries to
understand what this may mean from a macro-perspective over the long
term, then you are a technical investor.

Manage risk. As with any investment decision, you must decide how
much risk youre willing to accept. Ask yourself, how much am I
prepared to lose on this position? If you dont have a convincing or
comfortable answer then you should rethink the trade. Do not risk more
than you can afford to lose. Think about how you can mitigate your


Page 39 of 42

downside risk; make use of trading strategies such as stop losses or
limit orders.


Stick to what you know. There are 34 currency pairs that can be traded
on dbFX, each of which have their own characteristics and
considerations to understand and analyze. If youre participating in the
market on a part-time and non-professional basis, it is probably better
to concentrate on just a few pairs and commit to thorough and robust
research on those, rather than superficial research on the many. Some
key things to consider when analyzing a currency pair are its liquidity,
transaction costs (the spread), and volatility. As a general rule, major
currencies usually have better liquidity, tighter spreads, and lower
volatility, versus emerging-market currencies, which have poor
liquidity, wide spreads, and volatile movements.

Plan your trade, and trade your plan. Its one thing to have a plan,
its quite another to execute it. When trading currency, it's important
not to get caught up in the moment--the markets are fast moving and in
the short-term can be unpredictable. Rather than trying to make a quick
profit, stick to your long-term plan based on your research. Good
currency traders make money in the long term by being disciplined, not
necessarily by making short-term bets.


Research, research, research. Its important to stay current. All
currencies move quickly, so checking the price once a week is not
going to help you make strong, long-term returns. It is helpful to use an


Page 40 of 42

online provider that provides you with up-to-the-minute data and
statistics. Traders use data to constantly assess their trading positions

Keep your emotions in check. Like many important decisions, it is
vital to keep emotion out of any trading decision you make. If youre
upset about missing out on an opportunity and want to trade yourself
into a better position, or want to stray from your trading strategy to
make up for a loss earlier in the day-- reconsider, because youve got
the warning signs of someone about to make an impetuous, irrational
decision. If you do feel yourself getting emotionally involved in a
particular trade, take a deep breath, review your strategy, and establish
how such a decision will affect your overall approach before going
anywhere near the "execute" button.



Dont expect to win on every trade. That may not sound like much of
a sales pitch, but even the most successful of traders dont win on every
trade. What they do have is a robust plan and long-term strategy, which
carefully considers the risks. So dont necessarily be disheartened if a
trade doesnt go your way; review why it went wrong and see if there is
anything to learn from the experience. But dont think that currency
trading is an option for those seeking quick money, because like any
investment, it only should be played by those with a long-term goal in
mind.

Dont put all (nest) eggs in the currency basket. Foreign exchange is
only one of the many asset classes you should be considering as part of


Page 41 of 42

a balanced investment portfolio. Forex trading is not suitable for every
investor, so if you are committing all of your financial resources to
forex trading, be sure you are fully aware of the risks and rewards of
doing so, because commitment to one asset-class is not recommended.
The same applies for currency trading itself. Risk diversification allows
you to mitigate your risk by spreading it out, that is, not placing all your
faith in a single trade. Diversification is key, no matter what asset class
youre investing with.












BIBLIOGRAPHY
Books:


Page 42 of 42

1) Dales S. Beach, personnel, Macmillan, New York, 1985
2) P.F. Drucker, the Practice of Management, Allied, New Delhi 1970
3) Hull C John; Prentice hall, Introduction to Futures and Options
Markets
4) Gupta S.P, Statistical Methods, 36 revised edition
5). V. A. Avadhani, Investment Management

Newspaper & Magazines
1) The Economic Times
2) Business standard
3) Wise money(smc)
4) Securities Market Module: NCFM
5) Training kit provided by SMC

Web sites
1) www.smcindiaonline.com
2) www.nseindia.com
3) www.bseindia.com
4) www.rbi.org
5) www.sebi.gov.in
6) www.mcxindia.com
7) www.ncdex.com
8) www.nmce.com
9) www.smctradeonline.com

Você também pode gostar