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FACTORS AFFECTING FOREIGN EXCHANGE RATES 2008-08-15 11:14:28 Foreign Exchange being a commodity likes any other commodities the exchange rates tend to fluctuate from time to time. There are various factors that cause the fluctuation in the rates of exchange. These factors can be divided into several following groups. These groups can affect the exchange rates on a short term as well as long-term basis.1. Fundamental Factors:The fundamental factors include a
FOREIGN INVESTMENT 2008-08-10 12:29:59 Foreign Investment has two components, Namely1. Foreign direct investment (FDI).2. Portfolio Investment.Foreign direct investment (FDI) to and by India up to 1999-2000 comprise mainly equity capital. In line with international best practices, the coverage of FDI has been expanded since 2000-01 to include, besides equity capital reinvested earnings (retained earnings of FDI companies) and 'other di
BALANCE OF PAYMENT ACCOUNT - EXPLANATORY NOTES 2008-08-09 14:43:42 Balance of payments is a statistical statement that systematically summarises, for a specific time period, the economic transactions of an economy with the rest of the world. - Merchandise credit relate to export of goods while Merchandise debit represent import of goods- Travel covers expenditure by non-resident travellers during their stay in the country and expenditure incurred by resident trav
FOREIGN EXCHANGE RATES 2008-08-09 14:24:31 Exchange rates is the price of one country's money in terms of other country's money. When we say that exchange rate of Indian Rupee is 42.23 per US Dollar (22:13 IST), we mean that 42.23 Indian Rupees are required to purchase one US Dollar. When this exchange rate becomes 43 we say that the value of Indian Rupee depreciated against the US Dollar. On the other hand when the exchange rate becomes 4
FOREIGN EXCHANGE MARKET - SPOT FOREIGN EXCHANGE MARKET 2008-08-09 11:31:09 Far larger than the money changer market is the spot foreign exchange market which is at the second level. This market is involved with the exchange of currencies held in different currency denominated bank accounts. The spot exchange rate, which is determined in the spot market, is the number of units of one currency per unit of another currency, where both currencies are in the form of bank depo
FOREIGN EXCHANGE MARKET - CURRENCY DEALERS 2008-08-06 13:15:38 The foreign exchange market is a market in which currencies are bought and sold against each other. In other words, foreign exchange market is the market where the currency of one country is exchanged for the currency of another country. It is the largest market in the world having daily turnover of over US $3.2 trillion. The market is an over the counter market. There is no single market place or Read more:DEALERS
FOREX MANAGER 2008-08-06 11:22:36 The development in international trade have resulted in the emergence of a new brand of manager called the forex manager. The forex manager is a category apart from the finance manager or the treasury manager. He deals in currency and money but not of one country. He has to transact with a number of counter parts both in the domestic and abroad. He is face to face with special kind of risk. Yet hi
SIGNIFICANCE OF FOREX MANAGEMENT 2008-08-06 10:21:25 Business operations in countries across the globe have been in existence for centuries, but an unprecedented growth in world wide production and distribution of a large number of capital, intermediate and consumer goods has been witnessed in the past fifty years. At present most of the countries are economically related to each other through a complex network of trade, foreign investment and inter
SCOPE OF FOREX MANAGEMENT 2008-08-06 09:35:49 Forex Management has quite a wide scope of operation. We can cover in its ambit all those transactions which involve use of forex. Let us consider the following illustrations:** A Citizen of India travels abroad on a business visit and purchased foreign currency from an authorized dealer.** An Indian citizen goes to USA for a period of three years under an employment contract. He periodically remi
FOREX MANAGEMENT - ESSENTIAL ELEMENTS 2008-08-06 08:22:09 Forex management may be defined as the science of management of generation, use and storage of foreign currencies in the process of exchange of one currency into other called exchange.The above definition of Forex Management has the following essential elements:A) It is part of management science: Forex management is part of the broader management science. It is a scientific discipline requirin
Intermediate arrangements for determination of exchange values 2008-09-12 08:55:32 There are many intermediate arrangements for determination of exchange values. These arrangements are being listed below:A) Domestic currency pegged to one foreign currencyUnder this arrangement, the exchange rate of one currency is pegged to a dominant foreign currency, usually the U.S. dollar. For example the Argentine peso was till recently pegged to the US dollar in the ratio 1:1, due to the e Read more:Intermediate
EXCHANGE RATE QUOTES 2008-09-12 08:33:57 Every firm and individual operating in international environment is concerned with foreign exchange i.e, the exchange of foreign currency into domestic currency and vice-a-versa. Generally, the firm's foreign operations earn income denominated in some foreign currency, however, the shareholders expect payment in domestic currency and therefore, the firm must convert the foreign currency into domes
INTER-RELATIONSHIP OF VARIABLES AFFECTING EXCHANGE RATES 2008-08-31 23:55:34 Interest rate, inflation rates, forward margins, exchange rates and expectation across nations are inter-related as shown in the diagram below.The diagram suggests that interest rates vary across countries because of varying expectations with regards to their rates of inflation. Under perfect competition, funds would move to a country where real interest rate (nominal interest rate less inflation
TYPES OF SPOT RATES 2008-09-20 09:56:27 Generally, in the spot exchange market, two types if spot rates may be quoted.* Ask Price* Bid PriceAsk Price:The Ask price is the rate at which the foreign exchange dealer ‘asks’ its customers to pay in local currency in the local exchange of the foreign currency. In other words, ask price is the selling rate or the offer rate and refers to the rate at which the foreign currency can be purcha
SPOT EXCHANGE RATES 2008-09-20 09:48:31 A spot exchange rate is a rate at which currencies are being traded for delivery on the same day. For example, and Indian Importer may need U.S. $ to pay for the shipment that has just arrived. He will have to purchase the $ in the market to make payment for the import. The rate at which he will buy the $ in the market is known as the spot exchange rate. He will make the payments in terms of Rs. a
Managing forex exchange rate risk 2008-11-13 09:26:32 Changes in exchange rate give rise to foreign exchange risk, the firms dealing with other currencies usually face foriegn exchange risk. Firms that import and export often need to make commitments to buy or sell the goods for delivery at some future time, with the payment to be made in foreign currency. Likewise, firms operating foreign subsidiaries receive payment from these subsidiaries in forei
Relationship between spot and forward rates 2008-10-25 09:39:53 A study of the relationship between spot and future rates would help in determining the degree and the extent of predictability of the former on the basis of the later.The collective judgment of the participants in the exchange market influences the appreciation or depreciation in the future spot price of a currency against other currencies. The forward premium or discount is also affected by the Read more:Relationship
CROSS RATE FOR A CURRENCY 2008-10-25 09:06:44 The cross rate for a currency is the exchange rate based on the exchange rate of two other currencies. The exchange rate between two currencies calculated on the basis of the rate of these two currencies in terms of a third currency is known as a cross rate. For example, an American trader gives the following quotations in New York: $0.99/Euro and $1.80/£, then the cross rates Euro/£ or £/Euro
Recommendations by Committee on Capital account convertibility 2008-12-05 05:10:01 The committee's recommendations for a phased liberalization of controls on capital outflows and inflows over the three-year period, inter alia, include:i) Indian Joint Ventures/Wholly-Owned Subsidiaries (JVs/WOSs) should be allowed to invest up to US $ 50 Million in ventures abroad at the level of the authorized dealers (ADs) in Phase I with transparent and comprehensive guidelines set out by the Read more:Committee
Capital account convertibility - Indian Case 2008-11-28 08:56:17 Capital account convertibility is one of the essential parameter not only for an effective integration of the financial market of domestic economy to the world economy but also for India's maturing as mega world economic power in the prevailing environment of competition, deregulation and diffusion of information technology. Capital account convertibility of full convertibility in simple term refe
Capital account convertibility - Convertibility of rupee 2008-11-22 09:06:04 Capital account and, by extension, full convertibility of the rupee has emerged as an often debated issue in the context of the liberalization process in India.It is worth nothing, at the outset, that India is not alone in its endeavor to make its currency convertibility, nor is it the only country which is facing the daunting task of overcoming several hurdles on its way to full currency converti
Mechanics of Forex Trading 2008-11-19 06:55:15 Forex trading is an important aspect of forex management. It is basically concerned with various forex operations including purchase and sale of currencies of different countries in order to meet payments and receipts requirements as a result of foreign trade. Forex trading is done either in retail market or in whole sale market (also called inter bank market). Under retail market, the traveler an Read more:Forex
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Exchange rate forecasting 2008-11-16 03:08:49 An exchange rate, as seen previously, is the price of one currency expressed in terms of another currency. The exchange rate among countries are affected by a large number of factors like rate of inflation, growth prospects, political stability, and economic policies. Most of these factors are difficult to predict in advance. As a result, the future exchange rates, like most of the events, become Read more:Exchange
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