About Foreign Exchange

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About Foreign Exchange
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About Foreign Exchange

• Basically, the Forex (Foreign Exchange) market is
  where banks, businesses, governments, investors
  and traders come to exchange and speculate on
  currencies.
• The Forex market is the largest and most liquid
  market in the world. Here is a little more about
  foreign exchange.

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 Foreign Exchange Market

• In todays global market place, foreign exchange
  plays a significant role 4 trillion US dollars
  worth of currency is exchanged on a daily basis
• Prices available 24 hours a day, 7 days a week
• No formal exchange for currencies. Trading is
  done over the counter in an interbank market and
  via brokers
• In this highly dynamic environment, global
  presence, extensive footprint, and local
  knowledge are characteristics to look for in your
  trade bank

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Who Uses Foreign Exchange?

• Importers/Exporters - Importers pay in the
  foreign currency, exporters receive payment in
  foreign currency
• Multinational corporations - Multinationals fund
  foreign subsidiaries and funds are repatriated
  back to parent companies
• International investors - International investors
  hedge interest payments with forwards
• Tour operators - Tour operators book foreign
  travel in the local currency
• Schools - Schools make and receive tuition
  payments in foreign currency

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Bottom Line

• Hedging can eliminate the uncertainty of the
  forex rate that will be used by a company in the
  future
• A foreign exchange forward contract allows a
  company to pay or receive foreign currency in
  future at an exchange rate that is agreed upon
  today
• By locking in the rate, a company can protect
  profits margins and eliminate uncertainty of the
  value of cash flows
• A company can know exactly how many US dollars
  they will pay or receive in the future thus,
  they can better forecast their business cash
  flow cycle and plan operations accordingly

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