Foreign exchange market
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Transcript of Foreign exchange market
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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