Forex Trading

Different Types of Transactions in the Foreign Exchange Market

A very brief account of certain important types of transactions conducted in the foreign exchange market is given below

Spot and Forward Exchanges Spot Market:

The term spot exchange refers to the class of foreign exchange transaction which requires the immediate delivery or exchange of currencies on the spot. In practice the settlement takes place within two days in most markets. The rate of exchange effective for the spot transaction is known as the spot rate and the market for such transactions is known as the spot market.

Forward Market:

The forward transactions is an agreement between two parties, requiring the delivery at some specified future date of a specified amount of foreign currency by one of the parties, against payment in domestic currency be the other party, at the price agreed upon in the contract.… Read the rest

Abey Francis

Foreign Exchange Risk or FOREX Risk

Foreign Exchange dealing is a business that one get involved in, primarily to obtain protection against adverse rate movements on their core international business. Foreign Exchange dealing is essentially a risk-reward business where profit potential is substantial but it is extremely risky too.

Foreign exchange business has the certain peculiarities that make it a very risky business. These would include:

  • Forex deals are across country borders and therefore, often foreign currency prices are subject to controls and restrictions imposed by foreign authorities. Needless to say, these controls and restrictions are invariably dictated by their own domestic factors and economy.
  • Forex deals involve two currencies and therefore, rates are influenced by domestic as well as international factors.
… Read the rest
Abey Francis

Foreign Exchange Forecasting in Practice

Most of the approaches to foreign exchange rate determination tell only part of the story–like the several blindfolded men touching different parts of the elephant’s body–and other, more comprehensive explanations cannot, in practice, be used for precise forecasting. We do not yet have a way of bringing together all of the factors that help determine the exchange rate in a single comprehensive approach that will provide reliable short- to medium-term predictions.

The exchange rate is a pervasive and complex mechanism, influencing and being influenced by many different forces, with the effects and the relative importance of the different influences continuously changing as conditions change.… Read the rest

Abey Francis