Literature Review of Foreign Exchange

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LITERATURE REVIEW

Foreign exchange exposure is very crucial now a days as cross border trade is increasing day byway at a very fast pace. But it is also regarded as very complex. There is a dearth of good literature on this subject, especially in India. Some of the studies identified in this area areas follow; Bengt Pramborg, in this study, ―Foreign Exchange Risk Management by Swedish and Korean Non Financial Firms: A Comparative Survey‖, 2002, makes a comparison of hedging practices of Swedish and Korean Firms. The evidence suggests that Korean firms are more concerned about fluctuations in their cash flows whereas Swedish firms focus on accounting numbers.

2.1 THE HISTORY OF FOREIGN EXCHANGE
The Foreign exchange trading history started in 1875 with the birth of the gold standard monetary. Prior to 1875, countries primarily used gold and silver as a form of international payment. Payment using gold and silver were hampered by their devaluation according to external factors such as an increase in the discovery of new deposits, which would lead to a change in supply and demand. This factor would change the Foreign exchange trading history forever.
The aim of the implementation of the gold standard was to guarantee any currency, to set amount of gold. Currency was now backed by gold, measured in ounces. Countries needed large gold reserves to back the demand for currency. This new Bretton Woods monetary system defined the new Foreign exchange market history: * A new method of obtaining a fixed foreign exchange rate. * The gold standard to be replaced with the US Dollar as the ultimate exchange currency. * The US Dollar to be the only currency backed by gold. * The inception of three international authorities to guard over all foreign transactions.
“According to Julian Walmsley, author of The Foreign Exchange and Money Markets Guide” although foreign exchange has existed since before biblical times, a formal global market for foreign exchange did

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