FOREIGN EXCHANGE MARKET
The term FOREX in general refers to foreign exchange i.e. foreign currency or internationally accepted means of payment. Possession of foreign exchange enables a person or a country purchase goods and services from other countries. Currency of a particular country enables us to have goods and services from that country only. There are few currencies which are accepted throughout the world and can easily be converted into the currency of any other country. U.S.A` s dollar $, England `s pound, European euro, Japanese yen are some of the currencies which by and large accepted are throughout the world.
The foreign exchange market is also known as FOREX in this market where one currency is traded with other currencies. As per day turnover of this market is appox` $3.2 trillion. Demand for and supply of foreign exchange determines its price, that is, foreign exchange rate. When we say Rs 45 is the price of a dollar, it is the foreign exchange rate or the price of the dollar expressed in term of rupees. From nationalist point of view we may state the foreign exchange rate is a price of a rupee in dollar or cents.
A foreign exchange market can either be completely free or restricted. Restriction vary from country to country
FOREIGN EXCHANGE DEALER
Foreign exchange market is a place where the purchase and sale of foreign exchange take place .It is world wide market. The main participant is 1) retail client 2) foreign exchange broker 3) commercial bank and authorized agent. The central bank too participates in this market as per its policy decisions.
FUNCTION OF FOREIGN EXCHANGE MARKET
1) TRANSFER OF PURCHASING POWER: Internationally trade involves different currencies. One country should require purchasing power in form of that another country to purchase goods and services from that country. Foreign exchange market helps transfer purchasing power (currencies) between two people.
2) PROVISION OF CREDIT INSTRUMENTS AND CREDIT: For the purpose of transferring credit, credits instruments are used .These are in form of telegraphic transfer, foreign exchange bill, draft etc. Instrument with time period i.e. a bill of foreign exchange of 90 days can be discounted before the due date. Such a provision enables to obtain credit from the commercial banks or authorized agents.
3) COVERAGE OF RISK: Exporter and importer may cover the possible risk due to a future change in the exchange rate through forward exchange market. The forward exchange market is where buyer and seller agree to exchange currencies at some specified date in the future.
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