The Foreign Exchange Market

The Foreign Exchange Market

The Foreign Exchange Market

The Foreign Exchange Market

The foreign exchange market (also known as forex, FX or the currency market) is an over-the-counter (OTC) global marketplace that determines the exchange rate for currencies around the world. Participants are able to buy, sell, exchange and speculate on currencies.

Kinds of Foreign Exchange Market

  • Spot Markets.
  • Forward Markets.
  • Future Markets.
  • Option Markets.
  • Swaps Markets.

The basic function of the foreign exchange market is to facilitate the conversion of one currency into another, i.e., to accomplish transfers of purchasing power between two countries.

The foreign currency market is simply the market where the value of each currency goes up or down and can be bought or sold to make a profit. Banks and investors from all over the world trade it.

The foreign exchange market serves two main functions. The first is to convert the currency of one country into the currency of another. The process of using a financial formula (incorporating current exchange rates) to convert a given amount of one currency to its equivalent value in another currency.

The foreign exchange regulations in India are governed by the Foreign Exchange Management Act, 1999 (“FEMA”). The apex foreign exchange regulatory authority in India is the Reserve Bank of India (“RBI”) which regulates the law and is responsible for all key approvals.

Aside from factors such as interest rates and inflation, the currency exchange rate is one of the most important determinants of a country’s relative level of economic health. A higher-valued currency makes a country’s imports less expensive and its exports more expensive in foreign markets.

Exchange rate is the price of one currency in terms of another currency. Description: Exchange rates can be either fixed or floating. Fixed exchange rates are decided by central banks of a country whereas floating exchange rates are decided by the mechanism of market demand and supply.

Currency prices can be determined in two main ways: a floating rate or a fixed rate. A floating rate is determined by the open market through supply and demand on global currency markets. Therefore, if the demand for the currency is high, the value will increase.

Exchange rates directly impact international trade. Low exchange rates support tourism and the export economy. At that point, domestic goods become less expensive for foreign buyers. Domestic consumers, however, prefer higher exchange rates.

The Reserve Bank’s exchange rate policy focusses on ensuring orderly conditions in the foreign exchange market. For the purpose, it closely monitors the developments in the financial markets at home and abroad. When necessary, it intervenes in the market by buying or selling foreign currencies.

FEDAI : Foreign Exchange Dealer’s Association of India

Foreign Exchange Dealer’s Association of India (FEDAI) was set up in 1958 as an Association of banks dealing in foreign exchange in India (typically called Authorised Dealers – ADs) as a self regulatory body and is incorporated under Section 25 of The Companies Act, 1956. It’s major activities include framing of rules governing the conduct of inter-bank foreign exchange business among banks vis-à-vis public and liaison with RBI for reforms and development of forex market.

 FAI : Forex Association of India

Consist of Bankers Intermediaries & few corporates. An association which Organises conference & seminars has benefit of its members.