Types of Exchange Rate in Forex Market

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Types of Exchange Rate in Forex Market
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Index

1. Types of Exchange Rates
2. Foreign Exchange Risk
3. Risk Management

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Types of Exchange Rates

• 1 Fixed and Floating exchange rates
• 1. Fixed
• The fixed exchange rate is the standard rate set
  by the monetary authorities of the Governance for
  one or more currencies.
• 2. Floating Exchange Rates
• Under the floating exchange rate, the value of
  the currency is decided by supply and demand
  factors

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• 2 Direct and indirect exchange rates
• 1. Direct method
• Under the given number of units of local currency
  per unit of foreign currency is quoted. They are
  designated as direct rates because the rupee cost
  of single foreign currency unit can be obtained
  directly. Direct quotation is also called home
  currency quotation.
• 2. Indirect method
• Under the given number of units of foreign
  currency per unit of national currencies is
  quoted. The indirect quotation is also known as
  foreign currency quotation.

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• 3 Buying and Selling
• Exchange rates are quoted as two-way quotes
• 1. For Purchase
• 2. And for Sale
• Transactions by the Bank

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• 4. Spot and forward
• The delivery under the foreign exchange
  transaction can be settled in one of the
  following ways
• 1. Ready or cash To be settled on the same day.
• 2. Tom To be settled on the day next to the date
  of the transaction.
• 3. Spot To be settled on the second working day
  from the date of the contract.
• 4. Forward To be settled at a date further than
  the spot date.

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Foreign Exchange Risk

• Exposure to exchange rate movement.
• Any sale or purchase of foreign currency net
  assets the net asset or net liability position of
  the buyer and seller.
• Carrying net assets or net liability position in
  any currency gives rise to the exchange risk.

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Risk Management

• 1. Controlling losses
• You could control your losses, by a mental stop
  or hard stop. Mental stop means that you already
  set your limit of your loss. A hard stop is your
  initiative to stop when you think you must to
  stop it.
• 2. Using correct lot size
• As a beginning just use the smaller lots, you
  could stay flexible and logic than the emotions
  while you trade.

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• 3. Tracking overall exposure
• You go to short on EUR/USD and long on USD/CHF
  you exposed two times for the USD in the same
  direction. If USD goes down, you have a double
  dose of pain. So, keep the overall exposure
  limited it keeps you for the long haul for
  trading.
• 4. Bottom line
• Trading is all about opportunities you must take
  action while the opportunities arise.

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Thank You