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
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