foreign exchange

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Presentation Transcript

FOREIGN EXCHANGE MARKET : 

10/12/2009 IFM - III UNIT 1 FOREIGN EXCHANGE MARKET What is Forex Market? the foreign exchange market is the market in which currencies are bought and sold each other.

FOREIGN EXCHANGE MARKET : 

10/12/2009 IFM - III UNIT 2 FOREIGN EXCHANGE MARKET How it is functioning? The market itself actually a worldwide network of inter-bank traders, consisting primary of banks, connected by telephone lines and computers.

Exchange rate Equilibrium : 

10/12/2009 IFM - III UNIT 3 Exchange rate Equilibrium What is the reason for change? Although it is easy to measure the % change in the value of currency, it is more difficult explain why the value changed or to forecast the changes

Exchange rate Equilibrium : 

10/12/2009 IFM - III UNIT 4 Exchange rate Equilibrium Demand for a currency 1. Expensive – low demand for the particular currency 2. Cheap – high demand for the particular currency

Exchange rate Equilibrium : 

10/12/2009 IFM - III UNIT 5 Exchange rate Equilibrium Supply of a currency for sale 1. Expensive – high supply for the particular currency 2. Cheap – low supply demand for the particular currency

Exchange rate Equilibrium : 

10/12/2009 IFM - III UNIT 6 Exchange rate Equilibrium Equilibrium It is the point at which the demand and supply curve meet

Factors that influence exchange rate : 

10/12/2009 IFM - III UNIT 7 Factors that influence exchange rate The equilibrium exchange rate will change over time as supply and demand schedules change.

Factors that influence exchange rate : 

10/12/2009 IFM - III UNIT 8 Factors that influence exchange rate 1. Relative inflation rates Changes in inflation rates can affect international trade activity, which influences the demand for and supply of currencies and therefore influences the exchange rates

Factors that influence exchange rate : 

10/12/2009 IFM - III UNIT 9 Factors that influence exchange rate 2. Relative interest rates Changes in interest rates affect investment in foreign securities, which influences the demand and supply of currencies and it leads to influence exchange rates

Factors that influence exchange rate : 

10/12/2009 IFM - III UNIT 10 Factors that influence exchange rate 3. Relative income levels Changes in income levels can affect the amount of imports demanded, it may leads to affect exchange rates

Factors that influence exchange rate : 

10/12/2009 IFM - III UNIT 11 Factors that influence exchange rate 4. Government controls Imposing foreign exchange barriers Imposing foreign trade barrier Intervening (buying & selling) in forex markets Macro economic variables

Factors that influence exchange rate : 

10/12/2009 IFM - III UNIT 12 Factors that influence exchange rate 5. Expectations Foreign exchange market react immediately to any news that may have a future effect.

Factors that influence exchange rate : 

10/12/2009 IFM - III UNIT 13 Factors that influence exchange rate 6. Interaction of factors Trade related factors Financial factors Inflation differential Income differential Government trade restrictions Interest rate differential Capital flow restrictions India’s demand For foreign Goods Foreign demand For india’s substitutes India’s demand For foreign Goods Foreign demand For india’s substitutes India’s demand For foreign Goods Foreign demand For india’s substitutes India’s demand For foreign Currency Supply of foreign Currency Exchange Rate between Foreign Currency And rupee

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