Foreign Exchange Market

GROUP 10:

ĐINH THI HUONG

LE THI TRANG

NGO THI THUY

TRAN THI HUONG GIANG

DO THI THANH THAO

What is the FX market?

Exchange rate

Role of the bank in FX

CONTENT:

What is the Forex Market?

The Forex Market is a net work of buyers and sellers operating without where one currency is transferred for another currency between participants at agreed upon prices.

Forex is stand for phrase

Forex market is market currencies between banks was established in

when floating exchange rate are specified

a centralized exchange Foreign

Exchange

1971

What is the Forex

Market?

Traders include: banks, central banks, institutional investors,

currency speculators, corporations, governments,

retail investors,..

Largest and most liquid financial market in the world.

This is $ 1 Trillion

The daily volume of FX market is $ 5

Trillion

What is the Forex Market?

Forex does not have a financial center or any

transaction. The foreign exchange market is the market "interbank", and

based on electronic transactions between

systems linked together banks

operates 24 hours a day

What is the Forex Market?

Currencies are bought and sold in units called lots

1 lot = 100,000 units of the base currency

1 lot of EUR/USD =

€1 (1 Euro) X

100,000

Standard symbols for most commonly traded currencies:

EUR – EuroUSD – United States dollarCAD – Canadian dollarGBP – British poundHKD – Hong Kong dollar

JPY – Japanese yenAUD – Australian dollarCHF – Swiss francNZD – New Zealand dollarSEK – Swedish krona

Currencies are traded in pairs

GBP/USD or USD/JYP

A rate of exchange is the of one currency in terms of another; rates are quoted in two ways:

1. A variable number of units of foreign currency to a fixed number of units of home currency:

e.g. euro 1.4640 = £1; or Hong Kong dollars 14.14.4531= £1.

This type of rate quotation is termed an

2. A number of units of home currency to one unit of overseas currency:

e.g. quotations in euros are quoted to one unit of overseas currency.

This type of quotation is termed a

A is the rate of exchange for a foreign currency transaction which is to be settled within two working days of agreeing the rate.

A is a rate of exchange which is fixed ‘now’ for a deal which will take place at a fixed date or between two days in the future.

Exchange Rate

price

“indirect rate”

“direct rate”. Spot rate

Forward rate

Exchange Rate

FIXED EXCHANGE RATE

A fixed exchange rate system is one where the value of the exchange rate is fixed to another

currency. This means that the government have to intervene in the foreign

exchange market to maintain the fixed rate

Revaluation - describes an upward

movement in an exchange rate, but in a fixed exchange rate system. This will be a very infrequent event (if ever) and means the government has deliberately changed the fixed value of the

exchange rate upwards.

Devaluation - this means that the government has

changed the fixed rate of a fixed exchange

rate downwards.

FLOATING EXCHANGE RATE

Where the exchange rate is floating (as are all major currencies in the world), it will be

determined by market forces - that is supply

and demand. As in any other market, the rate will change constantly to reflect how much of the currency is being

traded.

Exchange Rate

Appreciation - this describes an upward movement in a freely floating exchange rate. This may occur day by day

or perhaps even minute by minute.Depreciation - this describes a downward movement in

a floating exchange rate.

Exchange Rate

Speculation

Balance of payment

Exchange rate Policy

Monetary Supply

The key factors affect

Exchange Rate

Exchange Rate

BOP will record:

ImportExport

Inflow of foreign investmentForeign revenue

If the foreign revenue is larger than payment, there

will be a larger supply of foreign currencies.

If the foreign payment is larger than revenue, then

the demand for foreign currencies will be higher

Exchange Rate

Speculation Political and economic situation

Exchange Rate

Money supply

DEFINITION

HOW IT WOULD AFFECT ON FOREIGN EXCHANGE RATE

the money supply is commonly defined to

be a group of safe assets that households and businesses can use to make payments or to hold as short-term investments.

It is known as a floating exchange rate since it floats according to supply and demand. Fluctuation in exchange rates are caused by an excess of supply over demand, vice versa.

Also called money stock

Definition

A country's exchange rate is typically

affected by the supply and demand for that country's currency in international exchange markets.

If demand exceeds supply, then the value of the currency will go up. If however, the supply of the currency exceeds demand, then its value will go down.

How it can effect

ER policy is a system of instruments used to influence the supply and demand of foreign currency in the market which helps to adjust the exchange rate in order to achieve the necessary goals.

Exchange rate policy

Discount rate method: This method is often used to adjust the exchange rate on the market. With this method, when the exchange rate reaches an alarming rate, the central bank must intervene raise interest rates discount. Due to the discount rate rise, therefore discount interest rates in the market have also increased. As a result, short-term loans on the world market will be put on to higher interest.

The instrument of exchange rate policy

The operations of the foreign exchange market:

Through the buying and selling of foreign currency exchange rate adjustment is one of the most important measures of the state to maintain stable purchasing power of national currencies. This measure is a direct impact on the exchange rate.

The instrument of exchange rate policy

Reserves to stabilize the exchange:

Funds to establish reserves to stabilize the exchange usually consists of treasury bonds issued in the national money. As in many foreign currencies, then use the funds to buy in order to limit the level of depreciation of the exchange Conversely, in the case of foreign loans to run the exchange stabilization fund launched sold foreign currency to continue purchase of bonds issued to prevent exchange rose

The instrument of exchange rate policy

Purpose of government intervention

- Maintaining stable economic environment

- Affect to BOP and maximize profits international integration

- Strategic direction for economic with benefit

The instrument of exchange rate policy

Role of bank in FOREX market

Role of bank in FOREX market

Central bank

Commercial bank

Role of bank in FOREX market

Central bank

• As custodians of the monetary system - and the owner's bank reserves national foreign exchange

• The central bank has regularly intervened in the foreign exchange market with two status:- Central banks conduct foreign exchange operations to balance the its customers- Monitoring of market activity within the framework of law provisions with the intervention

Role of bank in FOREX market

Commercial bank

• Trading on behalf of clients or on behalf of itself.

• Bank foreign exchange transactions conducted with two goals:

• + Trading business for yourself • + Provides services for customers

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