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General Business Articles

Factors Affecting the Forex Market

The exchange value of a currency, or the rate of exchange, fluctuates with changes in demand and supply. The factors which affect the demand for and the supply of a currency are many and varied. There are some factors which operate in the short period and have influence on day-to-day- fluctuations in rates of exchange. The commercial and financial relationship between trading countries is now extensive and payments on various accounts fall, due for early settlement. These payments constitute the short-term demand and supply in regard to currencies. There are, however, changes in currency and credit conditions and political and industrial conditions which have their influence on exchange rates only in the long period.… Read the rest

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Use of Forex Futures

Forex  futures are  futures markets  where the underlying commodity is a foreign currency. Foreign currency futures are essentially the same as all other futures markets (index and commodity futures markets), and are  traded  in exactly the same way.  Forex  futures markets trade futures contracts that reflect the exchange rates of two currencies. For example, the most popular currency futures market is the  EUR  futures market, which is based upon the Euro to US Dollar exchange rate.

Hedging with Forex Futures

Tenders make use of the market for forex futures/foreign currency futures in order to hedge their foreign exchange risk. For instance suppose a US importer importing goods from India for 1 million Rupees and he needs this amount for making payment to the exporter.… Read the rest

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Forward Foreign Exchange Contracts

Forward exchange is a device to protect traders against risk arising out of fluctuations in exchange rates. A trader, who has to make or receive payment in foreign currency at the end of a given period, may find at the time of payment or receipt that the foreign currency has appreciated or depreciated. If the currency moves down or gets depreciated the trader will be at a loss as he will get lesser units of home currency for a given amount of foreign currency, which he was holding. Similarly, an importer, who was contracted to make payment of a given amount in dollar at the end of a given period, may find that at the time of payment, the rupee dollar rate is higher.… Read the rest

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History of Exchange Rate Mechanism in India

India was a founder member of the International Monetary Fund (IMF). It followed the fixed parity system till the early 1970s as a result which the value of the rupee in terms of gold was originally fixed as the equivalent of 0.268601 gram of fine gold. In view of India’s long economic and political relations with England and membership of the sterling area from September 1939 to June 1972, the rupee was pegged to the pound sterling. The exchange rate was thus remained unchanged but the gold content of the rupee fell to 0.186621 gram. Again, with the devaluation of the Indian rupee in June 1996 the gold content fell further to 0.118489 gram.… Read the rest

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Foreign Exchange Department of Banks

The Foreign Exchange department, which is also being called as the International Banking Division, is one of the important departments of the banks operating in international market. In India also all scheduled commercial banks, both in the nationalized or non-nationalized sectors, do have Foreign Exchange departments, both at their principal offices as well as offices, in metropolitan centers. This department functions independently under the overall change of some senior executive or a senior officer well-versed in foreign exchange operations as well as in the rules and regulations in force from time to time pertaining to foreign exchange transactions advised by various government agencies.… Read the rest

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The Stages of Inflation

Inflation passes through three stages. In the first stage the rise in price is slow and gradual. In this stage it is easier to check the inflationary rise in the price of goods and services. But if inflation is not effectively checked in the first stage then it enters the second stage. In second stage inflation becomes a serious headache for the government. The prices of goods and services start rising much more rapidly then before. It not possible to eliminate inflation completely but if the government takes effective steps, it may be possible to prevent a further rise in price level.… Read the rest

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