Forex- foreign exchange market
Is a global decentralized or "over the counter" exchange happens to both parties present
Market trading of currency
Currency - Current – Circulation
Money in any form when it's use
Activities
 Buying
 Selling
 Trading/Exchange
Participants.
1. Commercial banks & security leaders
2. Commercial companies MNC
3. Central Banks
4. Investment Management firms.
5. Non-bank foreign exchange- money changer
6. Retail foreign exchange traders- brokers
7. Money transfer or remittance company, Bureuax de change
Fixed exchange rate: decided by the government
Floating exchange rate regime:
1. International parity conditions - equal conditions relative purchasing power parity, interest rate parity,
Domestic Fisher effect, International Fisher effect.
2. Balance of payments model- focuses largely on tradable goods and services, ignoring the increasing role of
global capital flow
3.
Asset market model - views currencies as an important asset class for constructing investment portfolios.
For shorter time frames (less than a few days)
Economic factors
 Economic policy comprises government
 Government Budget Deficities or surpluses
 Balance of trade levels and trends
 Inflation levels and trends
 Economic growth and health
 Productivity of an economy
Political conditions
Internal, regional, and international political conditions and events can have a profound effect on currency markets.
Market Psychology
Market psychology and trader perceptions influence the foreign exchange market in a variety of ways
 Flights to quality
 Long-term trends
 Buy the rumor, sell the fact
 Economic numbers
 Technical trading consideration
Financial Instruments
 Spot - A spot transaction is a two-day delivery transaction, as opposed to the futures contracts, which are
usually three months.
 Forward- One way to deal with the foreign exchange risk is to engage in a forward transaction
 Non
-deliverable forward (NDF)
-are derivatives that have no real deliver-ability.
 Swap - In a swap, two parties exchange currencies for a certain length of time and agree to reverse the
transaction at a later date. These are not standardized contracts and are not traded through an exchange.
 Futures -Futures are standardized forward contracts and are usually traded on an exchange created for this
purpose. The average contract length is roughly 3 months.
 Option - Is a derivative where the owner has the right but not the obligation to exchange money
denominated in one currency into another currency at a pre-agreed exchange rate on a specified date.
Tolentino, Hazel Ann
De Paz, Jahziel Anne