Forex Management

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PILLAI INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH

Course Syllabus
&
Study Notes

Post Graduate Diploma in Management – IB/bfm

Semester III

Forex management

Prof. D. C. Pai

Syllabus

UNIT 1
THE HISTORY OF MONEY
* HOW DID MARKETS FUNCTION WITHOUT COINS AND PAPER MONEY? * BARTER AND ANCIENT TRADE
* THE LIMITS OF BARTER
* THE DEVELOPMENT OF CURRENCY
* THE FUNCTIONS OF CURRENCY
UNIT 2
THE GLOBAL FOREIGN EXCHANGE MARKET
* FOREIGN EXCHANGE TURNOVER
* SPECULATION IS THE KEY DRIVER
* FOREIGN EXCHANGE MARKET CHARACTERISTICS
* REGULATION
* Foreign Exchange Markets – sum up.
* LEADING CURRENCIES
* CURRENCY TRADING TRENDS
* CURRENCY AS AN ASSET CLASS
* Summary
UNIT 3
EXCHANGE RATES AND THEIR MOVEMENTS
* INTRODUCTION/DEFINITION.
* FACTORS DETERMINING EXCHANGE RATES
* CURRENCY MOVEMENT FACTORS
* THE IMPACT OF REAL INTEREST RATES
* SPECULATION AND OTHER FACTORS
UNIT 4
EXCHANGE RATE MECHANISM
* Types and Calculation
* Ready or Cash, Tom, spot, Value Date
* Spot and forward rates
* Direct and Indirect Quotes
* Cross Rates & chain Rule
* Fixed vs. Floating Rates
* Arbitrage in Exchange
UNIT 5
FOREIGN EXCHANGE DEALING ROOM OPERATIONS
* Qualities of a DEALER
* FUNDS POSITION, CURRENCY POSITION
* FRONT OFFICE, BACK OFFICE & MID OFFICE
* MANAGEMENT AND CONTROL OF DEALING ROOM
* RISK ASSOCAITED WITH fx DEALING ROOM
UNIT 6
Risk in foreign exchange operations
* introduction
* DEFINITIONS OF RISK AND RISKS IN INTERNATIONAL TRADE
* RISKS IN FOREIGN EXCHANGE OPERATIONS
* What is risk and various risks in international trade
* Management of these risks and various guidelines related to risk management UNIT 7
Basics of derivatives
* WHAT ARE DERIVATIVES
* HISTORY AND DEVELOPMENT
* Derivatives in India — An Overview
* DERIVATIVE INSTRUMENTS
* forward contracts
UNIT 8
derivative instruments - futures
* Futures – key feautres
* futures vs forwards
* the margin process
* initial margin
* variable margin
* maintaince margin
UNIT 9
derivative instruments - options
* option isa right not an obligation
* call option / put option
* option premium
* in the money, at the money, out of the money
* american option/ european option
UNIT 10
derivative instruments - swaps
* interest and currency swaps
* definition
* comparitive advantage
* asset and liability management
* interest rate swaps
* currency swaps
UNIT 11
Hedging FOREIGN EXCHANGE RISK
* INTRODUCTION
* hedgeing
* hedgeing instruments
* short term hedgeing
* long term hedgeing
* SPECULATION
* ARBITRAGE
UNIT 12
REGULATORY FRAMEWORK
* REGULATORY FRAMEWORK
* The Reserve Bank of India
* Foreign Exchange DEALER’S ASSOCIATION OF INDIA
* IMPORTANT REGULATORY GUIDELINES FOR
* RESIDENTS OTHER THAN AD’S
* FOREIGN INSTITUTIONAL INVESTORS (fii)
* NON RESIDENT INDIANS & OVERSEAS CORPORATE BODIES * FOREIGN DIRECT INVESTMENTS (fdi)
* FOREX FACILITIES FOR RESIDENTS (INDIVIDUAL)

UNIT 1
THE HISTORY OF MONEY
Learning objectives:
After studying this unit, you should be able to:
* HOW DID MARKETS FUNCTION WITHOUT COINS AND PAPER MONEY? * BARTER AND ANCIENT TRADE
* THE LIMITS OF BARTER
* THE DEVELOPMENT OF CURRENCY
* THE FUNCTIONS OF CURRENCY

BARTER AND ANCIENT TRADE
HOW DID MARKETS FUNCTION WITHOUT COINS AND PAPER MONEY?
The concept of barter is familiar to all of us. For instance, a babysitter could exchange her services for a couple of tickets to a rock concert. Or a bachelor might get his elderly neighbor to mend his shirts and trousers in exchange for mowing her lawn. In both cases, no money changes hands. The Oxford English Dictionary defines barter as “to trade by exchanging goods and services for other...
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