This project attempt to study the intricacies of the foreign exchange market. The main purpose of this study is to get a better idea and the comprehensive details of foreign exchange risk management.
To know about the various concept and technicalities in foreign exchange.
To know the various functions of for ex market.
To get the knowledge about the hedging tools used in foreign exchange.
LIMITATIONS OF THE STUDY
Bias on the part of interviewers.
The primary data was collected through interviews of professionals and observations.
The secondary data was collected from books, newspapers, other publications and internet.
The data analysis was done on the basis of the information available from various sources and brainstorming.
FOREIGN EXCHANGE MARKET OVERVIEW
In today’s world no economy is self sufficient, so there is need for exchange of goods and services amongst the different countries. So in this global village, unlike in the primitive age the exchange of good sand services is no longer carried out on barter basis. Every so foreign country in the world has a currency that is legal tender in its territory and this currency does not act as money outside its boundaries. So whenever a country buys or sells goods and services from or to another country, the residents of two countries have to exchange currencies. So we can imagine that if all countries have the same currency then there is no need for foreign exchange. Need for Foreign Exchange
Let us consider a case where Indian company exports cotton fabrics toUSA and invoices the goods in US dollar. The American importer will pay the amount in US dollar, as the same is his home currency. However the Indian exporter requires rupees means his home currency for procuring raw materials and for payment to the labor charges etc. Thus he would need exchanging US dollar for rupee. If the Indian exporters invoice their goods in rupees, then importer in USA will get his dollar converted in rupee and pay the exporter. From the above example we can infer that in case goods are bought or sold outside the country, exchange of currency is necessary. Sometimes it also happens that the transactions between two countries will be settled in the currency of third country. In that case both the countries that are transacting will require converting the irrespective currencies in the currency of third country. For that also the foreign exchange is required.
About foreign exchange market.
Particularly for foreign exchange market there is no market place called the foreign exchange market. It is mechanism through which one country’s currency can be exchange i.e. bought or sold for the currency of another country. The foreign exchange market does not have any geographic location. Foreign exchange market is describe as an OTC (over the counter) market as there is no physical place where the participant meet to execute the deals, as we see in the case of stock exchange. The largest foreign exchange market is in London, followed by the New York, Tokyo, Zurich and Frankfurt. The markets are situated through out the different time zone of the globe in such a way that one market is closing the other is beginning its operation. Therefore it is stated that foreign exchange market is functioning throughout 24 hours a day .In most market US dollar is the vehicle currency, viz., the currency used to dominate international transaction. In India, foreign exchange has been given a statutory definition. Section 2 (b) of foreign exchange regulation ACT, 1973 states:
Foreign exchange means foreign currency and includes:
All deposits, credits and balance payable in...