CURRENCY MARKET

CURRENCY MARKET - Transcript

CURRENCY MARKET

The foreign exchange market forex FX or currency market is a worldwide decentralized over the counter financial market for the trading of currencies Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock with the exception of weekends The foreign exchange market determines the relative values of different

The Forex market


The Forex market attracts trillions of dollars per day from central banks corporations hedge funds and individual speculators This fast paced market operates 24 7 5 days a week beginning with trade in Wellington New Zealand and continuing on to Sydney Australia Tokyo Japan London England and New York New York before the whole cycle begins again



Why the foreign exchange market is unique


its huge trading volume leading to high liquidity its geographical dispersion its continuous operation 24 hours a day except weekends i e trading from 20 15 GMT on Sunday until 22 00 GMT Friday the variety of factors that affect exchange rates the low margins of relative profit compared









Determinants of FX rates
a International parity conditions Relative purchasing power parity interest rate parity domestic fisher parity international fisher parity b Balance of payments model This model however focuses largely on tradable goods and services ignoring the increasing role of global capital flows



c Asset market model views currencies as an important asset class for constructing investment portfolios Assets prices are influenced mostly by people s willingness to hold the existing quantities of assets which in turn depends on their expectations on the future worth of these assets

Economic factors of Forex Market


Gross Domestic Product GDP Retail Sales Industrial Production Consumer Price Index CPI







Financial instruments


Spot A spot transaction is a two day delivery transaction except in the case of trades between the US Dollar Canadian Dollar Turkish Lira EURO and Russian Ruble which settle the next business day as opposed to the futures contracts which are usually three months Forward In this transaction money does not actually change hands until some agreed upon future date A buyer and



Contt


Swap In a swap two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date These are not standardized contracts and are not traded through an exchange Future Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates Option A foreign exchange option is a