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FOREIGN EXCHANGE MARKET :black_flag: - Coggle Diagram
FOREIGN EXCHANGE MARKET :black_flag:
CHARACTERISTICS OF FOREX MARKET
Have a willing buyer and willing seller (foreign exchange dealers) of the currencies. :silhouettes:
Exchange rate is available for 2 currencies required. :lock:
Mechanism to effect large amount of payments locally and globally through an electronic computer network system. :warning:
Corporation must have commercial documents to support their foreign exchange needs :check:
PARTICIPANTS OF FOREX MARKET :silhouettes:
Non-bank financial institutions
Money brokers
Corporations
BNM
Commercial banks
QUOTATIONS
SPOT MARKET :explode:
Currencies are traded for immeddiate delivery (within 2 working days using the spot rate price)
Company A deal with bank B on Tuesday to deal on a spot basis at an agreed rate of exchange between 2 currencies.
Delivery of both currencies by both parties will be on Thursday.
FOWARD MARKET :lock:
Is buying and selling currencies for future delivery
Foward contract made today to be paid out at some future date and at a fixed exchange rate.
FACTORS AFFECTING FOREX MARKET :warning:
Domestic economic condition & economic policies
GDP, :red_flag:
inflation (CPI), unemployment, trade balances, money supply
Geopolitical factors :red_flag:
Political uncertainties, election, scandal
Global economic conditions (external factors) :red_flag:
Economic conditions of large economies (US, EU, China)
Political changes in major countries
Policies announced by world institutions (World Bank, IMF)
Market sentiments :red_flag:
Optimism, pessimism, fears, rumors
Speculation :red_flag:
Normally conducted by foreign banks, international fund managers and hedgers who have huge funds
Differences in interest rates between countries :red_flag:
High demand for FOREX if a country has high interest rate – currency appreciation :
FOREIGN EXCHANGE RISKS : :no_entry:
Transaction risk :!!:
Happens when exchange rate fluctuates causing:
Different amount need to be paid by importers (not as per the agreed amount)
Value of assets and liabilities denominated in foreign currency move adversely
Revaluation losses (for firms who have offices outside the country)
Settlement risk :silhouette:
Happens when there is a default payment on the delivery date by one party, causing another party to incur losses.