Foreign Exchange

Foreign Exchange

27 Sep 2018 05:46 PM

Definition: Foreign Exchange

Converting one country’s currency into another country’s currency is called foreign exchange or currency exchange. Need to convert one currency into another arises when a traveler goes for an overseas trip or an exporter/importer sells/buys his products to/from a foreign country client. Foreign exchange is often called forex or FX.

Foreign exchange market is a global market where these foreign currencies are traded. This market is working round the clock on five days week depending on different time zones of each country. With the evolving of the internet, the trading in foreign exchange is available 24X7. There is no one major market for these foreign exchange transactions, but they are executed over the counter and round the clock.

There are many factors which aid in arriving at the rate of foreign exchange. There are fundamental and technical factors. Fundamental and economic factors drive the market on the long run. These are dependent on the country’s economic performance. For e.g. the gross domestic product, balance of payments, inflation, foreign inflows, employment data, etc drive the currency rate. The volume of transactions indicates the traded rate support. If the volumes are higher, means there are many takers at that foreign exchange rate.

The participants of the foreign exchange market range from individuals who travel abroad to importer or exporter who transact for purchase or sale of goods and services to speculative trader. Owing to its volatile nature, there are many traders who trade in foreign currency to make the quick buck. But just as there is upside in each transaction, there may be pitfalls which can burn the deep pockets of any trader. So it becomes important to have strategies in place before one ventures into foreign exchange trading.

When one transacts in the foreign exchange market, one buys or sells the currency of a particular country. But physical exchange of currencies doesn’t happen. Only when one tourist has to visit another country, would he exchange in physical form. Even that is recommended to be not more than 30 percent of total foreign exchange required as the balance amount can be digitally stored in the forex card or currency card.

The US Dollar is the actively traded currency, which are paired with Euro, British Pound, Japanese Yen, Indian Rupee, etc. When the currency is not against the US Dollar, it’s called as a cross currency. Euro/GBP, GBP/Yen, Euro/Yen are some of them. The different forex transactions are spot, cash, forward, future, option, etc. Depending on the strategy, the type of transaction is chosen.

Owing to its volatility, the financial institutions or banks generally don’t quote the real-time trading rate of the currencies and charge a huge margin over and above the currency rate. This calls for tracking the foreign exchange market often and may keep the finance personnel from doing their core job. Thus a corporate often requires advisors who assist them in remitting their foreign money.

We at Myforexeye provide services of experienced advisors and dealing room assistance to have transparency in the foreign exchange market. We watch the foreign exchange market movements, interpret the policy decisions of different economies and according to the hedge ratio take a call on the right strategy to be adopted for the client.

A well managed Forex Risk and exposure management policy would help the organization to mitigate such risks and not hurt the company’s revenue numbers. This is done by adopting hedging strategies to reduce the effect on the corporate cash flows.

Apart from giving information through RateCheck, Myforexeye foreign exchange services also include RateAudit, foreign exchange risk advisory (FRA), transaction forex risk advisory (TFRA), transaction process outsourcing (TPO), corporate training services, etc. For retail clients, we even offer the money changing facility or money transfer services.

Read more about Forex Services

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