Foreign Exchange (Forex)

Foreign exchange, also known as forex or FX, constitutes the largest and the most liquid financial market in the world with a daily average turnover of approximately USD 1.5 trillion. Foreign currency trading is the simultaneous buying and selling of currencies against each other.


Future receivables / payables in a foreign currency carry the risk that the foreign currency might depreciate / appreciate in value before it is received / paid. The forever fluctuating foreign exchange rates are a matter of concern not only to the export-import firms but also to the institutional and individual investors having assets and obligations in foreign currencies.


In the recent years, several risk management techniques such as forwards, futures, options, swaps etc. have been employed by organizations to mitigate the foreign exchange risk and uncertainty of cash flows. The organization should have a clear understanding of the advantages and disadvantages of each hedging technique to formulate appropriate strategies to realize the desired objectives.


Dealing in Forex Exchange Market include transaction between authorized dealers & the Exporter-Importer & other customers transaction between authorized dealer themselves, transaction with overseas bank & Transaction between authorized dealer & the RBI.


In line with the Liberalization measures undertaken in other areas, various reform measures have been introduced in foreign Exchange to make it Liquid, Vibrant, Open & Market determined.


Along with the changes in policies in foreign exchange trade & foreign investment, a significant change occurred with respect to exchange management. From a managed floating under which the exchange rate was officially determined, the regime has passed through several phases to reach the present market-based system under which the Exchange rate is determined by forces of demand & Supply.


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