forex trading

1
Foreign currency Trading

• A Macro-economic presentation

2
What is foreign currency trading all about ?

• Two Basic questions in your mind might be
  like...........
• Like in the exchanges(BSE or NSE) is it the place
  where we can purchase foreign currency ?
• Is it the case that we purchase all types of
  currencies , be it a Singaporean dollar or an
  Australian dollar , on a stock exchange , and the
  price of these currencies get affected by the
  demand and supply equilibrium that it creates ?

3
What happens in an exchange ?
Banks
Exchange price
Export Import market
4
The functioning of the exchanges

• From an Indian market scenario which would be
  easy to digest for a lot many of you ......
• In the currency segment you can only trade in
  futures and options (which are derivatives).
• In any exchange be it BSE or NSE you can only
  trade in the derivative instruments of US dollar
  , Euro , UK pound Japanese Yen.
• The of initial margin for trading in currency
  derivatives is much lesser than in equities.
• It is traded with price quotations of 4 decimal
  places.

5
Why was this created ?

• The objective of an extra segment for people to
  park in their surplus funds needs no explanation
• This segment creates an extra place where the
  purchasing powers of each currency can be zeroed
  upon.
• But the most important reason for its
  establishment is the HEDGING function that these
  markets offer.

6
HEDGING in foreign currencies

• Take for example a company like TCS ( an IT
  solution provider ) which has more than 70 of
  its revenues from abroad, especially U.S.
• Now for a company like TCS the exchange rate of
  the Indian National Rupee or INR to USD might
  affects its financial performance to many folds.
• So to protect itself from the volatility of rate
  fluctuations it purchases Futures of the amount
  equal to the estimated foreign inflow for the
  year.
• This in turn makes making estimates possible.

7
Thank You

• For your patient listening