Posted by admin on July 2, 2009 under Forex Trading | 
The Forex Transactions is a business in which foreign currency is the commodity. Foreign currency cannot be used in other countries than the mother country. The value of United States dollar is the value of any other commodity. Therefore, the foreign currency can be considered as the commodity in Forex Transactions.
Any forex trading has two aspects – purchase and sale. A trader has to purchase goods from his suppliers which he sells to his customers. Likewise, the bank is authorized to deal in forex purchases as well as sells its commodity. Two points need be constantly kept in mind while talking on Forex Transactions.
- The transaction is always talked of from the bank’s point of view, and
- The item referred to is the foreign currency.
Therefore, when we say a purchase, we imply that
- The bank has purchased, and
- It has purchased foreign currency
Similarly, when we say a sale, we imply that
- The bank has sold, and
- It has sold foreign currency.
The quotation for which manifestation of exchange rate is made as the price per unit of foreign currency in terms of the resident currency is termed as home currency quotation or direct quotation. The quotation wherein home currency’s unit is kept constant such a situation is termed as foreign currency quotation where price per unit and exchange rate are denoted in foreign currencies is termed as foreign currency quotation or indirect quotation or currency quotation.
To sum up, Forex Transactions involves all the above elements that may have to be blended in abundant measure for delivery of best results in making appropriate profits.
Posted by admin on July 1, 2009 under Forex Trading |
In the year 1949, modern Euro currency was established for the Growth of Forex Market. The new communist government of China seized the earnings of dollars would be blocked by United States of America. To address this risk, by keeping them with their dollar earnings began to hide the owner of a Russian bank in Paris. After the outbreak of the Korean War, the United States of America recognized and blocked the dollar balances. Their holdings of similar action against the fear of Russian banks in Paris and London, banks in Western Europe instead of direct deposit of them in New York to keep his balance by disguising started. Thus, western banks in the United States dollar and the balance at the communist depositors claimed that on the west coast had the same kind of claim. This is first factor favoring Growth of Forex Market.
The second factor favoring Growth of Forex Market is the decision taken by the United Kingdom Government to ban on new foreign loans, denominated in sterling to finance the trade between the countries outside the area of sterling. During this period, the exchange control restrictions are relaxed in Western Europe, which provides the freedom of commercial banks to do business and allowed to receive deposits in foreign currency. This situation is used by London banks to bid their limited clients in non-sterling area with alternative financing in United States dollars.
The real momentum for the Growth of Forex Market and Eurodollars came from certain developments in the United States of America itself. Regulation of the Federal Reserve act provided mandatory ceilings on interest rates that could be paid on bank deposits. Under the regulations, no interest was payable on bank deposits of less than thirty days duration, while interest rate for longer terms were governed by strict ceilings. Thus the interest rates payable on dollar deposits in the United States of America was restricted, while no such restriction was there for deposits from non-US residents. By offering higher rates of interest than those prevailing in the United States of America, banks operating outside the United States of America were able to attract substantial dollar deposits from non-US residents. The higher rate of interest also resulted in transfer of some of dollar balances kept by foreign investors in New York to outside the United States of America. Initially, these deposits were placed with banks in London, as they had a ready use of these funds in foreign exchange business and lending to non-sterling areas.
Thus, with all these factors of Growth of Forex Market London gained prominence as a financial center for Eurocurrency.
Posted by admin on under Forex Trading |
Forex Cover involves a meticulous coverage of foreign currency rates for various projections even after six months. This is meant by enabling your coverage at a predetermined exchange rate as well as protection of receipts that is handled in a slightly different connotation from payments. For example, forward exchange contract tantamount to a devise that provides sufficient protection to an importer or an exporter by combating exchange risks.
Under such a Forex Cover contract a banker as well as a customer along with another banker indulges in a contract. This contract is meant for buying or selling a dedicated amount of foreign currency on a specified future date at the dark or by making a shrewd guess. This guess is based on what the future rate would be by triggering the contract shrewdly. Under such circumstances they agree to market foreign exchange of a specified amount as well as currency at an indicated future date or period. The bank on its part decides to buy the currency at a predetermined rate of exchange. The exporter is thus getting a certainty of his or her rate in the local currency term. Here, the banker assures to buy the exchange of currency at the rate at which it is agreed upon by virtue of its own agreement and guess.
Forex Cover also involves a fact that such contracts would cover the aspects of risk management in foreign exchange. In accordance with foreign exchange dealers association rules such a contract is capable of being delivered only at a future date. Duration of the contract commencing from the spot value date of the same transaction, is arrived at. Normally, these transactions are lasting for three months and can be renewed for a period of up to six months.
To sum up, Forex Cover contracts are of two types fixed and option forward contracts. Wherever in the contract one rate is specified for a future date it is known as fixed forward contract. Whereas a contract whereby the customer can resort to selling or buying from the bank, foreign exchange on any day during a period, such a contract is known as option forward contract. The delivery of option period should not exceed normally a month. Between a banker as well as a customer the option vests with the customer. Bank should not force a customer for delivery of foreign exchange on any specific date. Customer has the liberty for covering Forex Cover to take a decision to choose any day within the period of option.
