A

REPORT
ON

“Forex Market”
A training report submitted in
( Master of Business Management )

OF

CENTRAL UNIVERSITY OF HARYANA

Submitted to: Dpt. of Business administration Submitted By:

CENTRAL UNIVERSITY OF HARYANA Name:AMIT KUMAR
MBA2.3 Roll No:190460210016

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 DECLARATION

I AMIT YADAV declare that i myself worked on the topic. Forex Market under guidance
and supervision of Dr. Anand Sharma, Head of the Department Associate Professor

I also confirm that the report is only prepared for the academic requirements in the degree of
MASTER OF BUSINESS ADMINISTRATION and not for any other purpose.

I hereby declare that the contents of this report are true and best to my knowledge.

Name: AMIT KUMAR

Designation: STUDENT

CUH

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 ACKNOWLEDGEMENT

My project was possible only due to the cooperation, co-ordination and united efforts of
different individuals along with several sources of material, knowledge and time. Pertaining
to this, I therefore take the opportunity to express my deep sense of gratitude to entire staff of
SME Join Up, Gurgaon for providing me this opportunity to learn about the company and
helping me during this summer training.

I would also like to acknowledge my sincere thanks to my guide Mr. YOGESH VASHISTH
for providing an opportunity to enhance my skills and also for the guidance and co-operation.

Discipline and comfortable working environment helped me in working more effectively.

The moving spirit behind this project goes to all people mentioned above, without their
constant encouragement and support, this project could not have been a successful outcome. I
am honoured to be a part of such a respected and reputed company.

Mr. YOGESH VASHISTH

Date:

Place:

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INDEX

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CHAPTER I : Forex Market

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Forex Market
The forex market allows participants, such as banks and individuals, to buy, sell
or exchange currencies for both hedging and speculative purposes. The foreign
exchange (forex) market is the largest financial market in the world and is made
up of banks, commercial companies, central banks, investment management
firms, hedge funds, retail forex brokers, and investors.

The forex market is not dominated by a single market exchange, but a global
network of computers and brokers from around the world. Forex brokers act as
market makers as well and may post bid and ask prices for a currency pair that
differs from the most competitive bid in the market.

The forex market is made up of two levels—the interbank market and the over-
the-counter (OTC) market. The interbank market is where large banks trade
currencies for purposes such as hedging, balance sheet adjustments, and on
behalf of clients. The OTC market, on the other hand, is where individuals trade
through online platforms and brokers.

From Monday morning in Asia to Friday afternoon in New York, the forex
market is a 24-hour market, meaning it does not close overnight. The forex
market opens from Sunday at 5 p.m. EST to Friday at 4 p.m. EST.3

This differs from markets such as equities, bonds, and commodities, which all
close for a period of time, generally in the late afternoon EST. However, as with
most things, there are exceptions. Some emerging market currencies close for a
period of time during the trading day.

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History of the Forex Market
Up until World War I, currencies were pegged to precious metals,
such as gold and silver. Then, after the Second World War, the system collapsed
and was replaced by the Bretton Woods agreement. That agreement resulted in
the creation of three international organizations to facilitate economic activity
across the globe. They were the following:

 International Monetary Fund (IMF)

 General Agreement on Tariffs and Trade (GATT)

 International Bank for Reconstruction and Development (IBRD)

The new system also replaced gold with the U.S. dollar as a peg for
international currencies. The U.S. government promised to back up dollar
supplies with equivalent gold reserves. But the Bretton Woods system became
redundant in 1971 when U.S. President Richard Nixon announced a
“temporary” suspension of the dollar’s convertibility into gold.

Currencies are now free to choose their own peg and their value is determined
by supply and demand in international markets

Type of Forex Markets

Three are three key types of forex markets: spot, forward, and futures.

Spot Forex Market

The spot market is the immediate exchange of currency between buyers and
sellers at the current exchange rate. The spot market makes up much of the
currency trading.

The key participants in the spot market include commercial, investment, and
central banks, as well as dealers, brokers, and speculators. Large commercial

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and investment banks make up a major portion of spot trades, trading not only
for themselves but also for their customers.

Forward Forex Market

In the forward markets, two parties agree to trade a currency for a set price and
quantity at some future date. No currency is exchanged when the trade is
initiated. The two parties can be companies, individuals, governments, or the
like. Forward markets are useful for hedging.

On the downside, forward markets lack centralized trading and are relatively
illiquid (since there are just the two parties). As well, there is counterparty risk,
which is that the other part will default.

Futures Forex Market

Future markets are similar to forward markets in terms of basic function.
However, the big difference is that future markets use centralized exchanges.
Thanks to centralized exchanges, there are no counterparty risks for either party.
This helps ensure future markets are highly liquid, especially compared to
forward markets.

Big Players in the Forex Market

The U.S. dollar is by far the most-traded currency. The second is the euro and
the third is the Japanese yen. JPMorgan Chase is the largest trader in the forex
market. Chase has 10.8% of the global forex market share. They have been the
market leader for three years now. UBS is in second, with 8.1% of the market
share. XTX Markets, Deutsche Bank, and Citigroup make up the remaining
places in the top five.

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Advantages and Disadvantages of Forex Trading
Forex markets have key advantages, but this type of trading doesn’t come
without disadvantages.

Pros

 Lots of flexibility, trading almost 24/7

 Plenty of trading options

 Low transaction costs

Cons

 Lack of regulation increases counterparty risk

 High leverage amounts allowed

 Operational risk

Advantages
One of the biggest advantages of forex trading is the lack of restrictions and
inherent flexibility. There’s a very large amount of trading volume and markets
are open almost 24/7. With that, people who work nine-to-five jobs can also
partake in trading at night or on the weekends (unlike the stock market).

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There’s a large amount of optionality when it comes to available trading
options. There are hundreds of currency pairs, and there are various types of
agreements, such as a future or spot agreement. The costs for transactions are
generally very low versus other markets and the allowed leverage is among the
highest of all financial markets, which can magnify gains (as well as losses).

Disadvantages
With forex markets, there are leverage risks—the same leverage that offers
advantages. Forex trading allows for large amounts of leverage. The leverage
allowed is 20-30 times and can offer outsized returns, but can also mean large
losses quickly.

Although the fact that it operates nearly 24 hours a day can be a positive for
some, it also means that some traders will have to use algorithms or trading
programs to protect their investments while they are away. This adds to
operational risks and can increase costs.

The other major disadvantage is counterparty risk, where regulating Forex

markets can be difficult, given it’s an international market that trades almost
constantly. There is no central exchange that guarantees a trade, which means
there could be default risk.

Forex Market
The foreign exchange or forex market is the largest financial market in the
world – larger even than the stock market, with a daily volume of $6.6 trillion,
according to the 2019 Triennial Central Bank Survey of FX and OTC
derivatives markets.1 The digital site where one currency is exchanged for
another, the forex market has a lot of unique attributes that may come as a
surprise for new traders. In this article we will take an introductory look at

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forex, and how and why traders are increasingly flocking toward this type of
trading.
An exchange rate is a price paid for one currency in exchange for another. It is
this type of exchange that drives the forex market.

There are 180 different kinds of official currencies in the world. However, most
international forex trades and payments are made using the U.S. dollar, British
pound, Japanese yen, and the euro. Other popular currency trading instruments
include the Australian dollar, Swiss franc, Canadian dollar, and New Zealand
dollar.
The forex market not only has many players but many types of players. Here we
go through some of the major types of institutions and traders in forex markets:

Commercial & Investment Banks

The greatest volume of currency is traded in the interbank market. This is where
banks of all sizes trade currency with each other and through electronic
networks. Big banks account for a large percentage of total currency volume
trades. Banks facilitate forex transactions for clients and conduct speculative
trades from their own trading desks.

When banks act as dealers for clients, the bid-ask spread represents the bank's
profits. Speculative currency trades are executed to profit on currency
fluctuations. Currencies can also provide diversification to a portfolio mix.

Central Banks
Central banks, which represent their nation's government, are extremely
important players in the forex market. Open market operations and interest rate
policies of central banks influence currency rates to a very large extent.

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A central bank is responsible for fixing the price of its native currency on forex.
This is the exchange rate regime by which its currency will trade in the open
market. Exchange rate regimes are divided into floating, fixed and pegged
types.

Any action taken by a central bank in the forex market is done to stabilize or
increase the competitiveness of that nation's economy. Central banks (as well as
speculators) may engage in currency interventions to make their currencies
appreciate or depreciate. For example, a central bank may weaken its own
currency by creating additional supply during periods of long deflationary
trends, which is then used to purchase foreign currency. This effectively
weakens the domestic currency, making exports more competitive in the global
market.

Central banks use these strategies to calm inflation. Their doing so also serves
as a long-term indicator for forex traders.

Investment Managers and Hedge Funds

Portfolio managers, pooled funds and hedge funds make up the second-biggest
collection of players in the forex market next to banks and central banks.
Investment managers trade currencies for large accounts such as pension funds,
foundations, and endowments.

An investment manager with an international portfolio will have to purchase

and sell currencies to trade foreign securities. Investment managers may also
make speculative forex trades, while some hedge funds execute speculative
currency trades as part of their investment strategies.

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Multinational Corporations
Firms engaged in importing and exporting conduct forex transactions to pay for
goods and services. Consider the example of a German solar panel producer that
imports American components and sells its finished products in China. After the
final sale is made, the Chinese yuan the producer received must be converted
back to euros. The German firm must then exchange euros for dollars to
purchase more American components.

Companies trade forex to hedge the risk associated with foreign currency
translations. The same German firm might purchase American dollars in the
spot market, or enter into a currency swap agreement to obtain dollars in
advance of purchasing components from the American company in order to
reduce foreign currency exposure risk.

Additionally, hedging against currency risk can add a level of safety to offshore
investments.

Individual Investors
The volume of forex trades made by retail investors is extremely low compared
to financial institutions and companies. However, it is growing rapidly in
popularity. Retail investors base currency trades on a combination of
fundamentals (i.e., interest rate parity, inflation rates, and monetary policy
expectations) and technical factors (i.e., support, resistance, technical indicators,
price patterns).

How Forex Trading Shapes Business

The resulting collaboration of the different types of forex traders is a highly
liquid, global market that impacts business around the world. Exchange rate

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movements are a factor in inflation, global corporate earnings and the balance
of payments account for each country.

For instance, the popular currency carry trade strategy highlights how market
participants influence exchange rates that, in turn, have spillover effects on the
global economy. The carry trade, executed by banks, hedge funds, investment
managers and individual investors, is designed to capture differences in yields
across currencies by borrowing low-yielding currencies and selling them to
purchase high-yielding currencies. For example, if the Japanese yen has a low
yield, market participants would sell it and purchase a higher yield currency.

When interest rates in higher yielding countries begin to fall back toward lower
yielding countries, the carry trade unwinds and investors sell their higher
yielding investments. An unwinding of the yen carry trade may cause large
Japanese financial institutions and investors with sizable foreign holdings to
move money back into Japan as the spread between foreign yields and domestic
yields narrows. This strategy, in turn, may result in a broad decrease in global
equity prices.

The Bottom Line

There is a reason why forex is the largest market in the world: It empowers
everyone from central banks to retail investors to potentially see profits from
currency fluctuations related to the global economy. There are various strategies
that can be used to trade and hedge currencies, such as the carry trade, which
highlights how forex players impact the global economy.

The reasons for forex trading are varied. Speculative trades – executed by
banks, financial institutions, hedge funds, and individual investors – are profit-

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motivated. Central banks move forex markets dramatically through monetary
policy, exchange regime setting, and, in rare cases, currency intervention.
Corporations trade currency for global business operations and to hedge risk.

Overall, investors can benefit from knowing who trades forex and why they do
so.

5 Basic Forex Market Concepts

You don't have to be a daily trader to take advantage of the forex market—every
time you travel overseas and exchange your money into a foreign currency, you
are participating in the foreign exchange, or forex, market. In fact, the forex
market is the quiet giant of finance, dwarfing all other capital markets in its
world.

Despite this market’s overwhelming size, when it comes to trading currencies,

the concepts are simple. Let’s take a look at some of the basic concepts that all
forex investors need to understand.

The forex market is the largest capital market in the world, larger than the stock
or bond markets.

Although there are hundreds of currencies, most forex trades happen in a

handful of major currency pairs.

Forex markets offer very high leverage, providing the opportunity for extremely
fast profits–or losses.

Many traders try to profit on the differences between interest rates among
various currencies. These are called carry trades.

Forex markets allow extremely high leverage, offering the potential for rapid
gains—or losses.

Eight Majors of Forex

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Unlike the stock market, where investors have thousands of stocks to choose
from, in the currency market you only need to follow eight major economies.
Informally known as The Majors, these eight economies and their currencies
make up the vast majority of forex transactions.

1. United States (U.S. dollar)

2. Eurozone (Euro)

3. Japan (Japanese Yen)

4. United Kingdom (Pound Sterling)

5. Switzerland (Swiss Franc)

6. Canada (Canadian dollar)

7. Australia (Australian dollar)

8. New Zealand (New Zealand dollar)

These economies have the largest and most sophisticated financial markets in
the world, and their currencies dominate the forex market. For example, the
U.S. dollar accounted for 88.3% of all forex trades, and the euro was used in
32.3 percent.1 The smaller currencies–the Australian, Canadian, and New
Zealand dollars–are known as commodity block currencies, because they tend
to reflect changes in global commodity markets.

By strictly focusing on these eight countries, we can take advantage of earning

interest income on the most creditworthy and liquid instruments in the financial
markets. Economic data is released from these countries on an almost daily
basis, allowing investors to stay on top of the game when it comes to assessing
the health of each country and its economy.

Predicting Price Movements

When you trade in the foreign exchange spot market, you are actually buying
and selling two underlying currencies. All currencies are quoted in pairs

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because each currency is valued in relation to another. For example, if the
EUR/USD pair is quoted as 1.2200 that means it costs $1.22 to purchase one
euro.

One of the most straightforward Forex trades is to bet on future currency

movements, either on the spot market or the futures market. If a trader believes
that the economy of the European Union is likely to outgrow the United States,
they may choose to sell dollars in anticipation of a stronger euro. Conversely,
someone who believes that the U.S. will outperform the other majors may sell
other currencies for dollars.

Currency futures work in the same way. In a futures contract, traders agree to
exchange currencies at a future date at a pre-agreed price. If the actual price of
the currency on that date is different from the futures price, one of the traders
will earn a profit.

Forex markets allow much higher leverage than the stock market. This means
you can quickly make extremely high profits—or losses!

Forex Yield and Return

When it comes to trading currencies, the key to remember is that yield drives
return.Every currency comes with an interest rate set by that country's central
bank. A currency trader can accrue interest on the difference between the
interest rate of the currency they sold and the currency they bought.

This dynamic allows one of the most popular forex strategies: the carry trade.
Carry traders hope to earn money not only by currency appreciation, but also
from the different interest rates between currencies.

For example, if New Zealand has an interest rate of 8% and Japan has an
interest rate of 0.5%, a trader who decides to go long on the NZD/JPY pair

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could earn 8% in annualized interest. From that, they would have to pay 0.5%
for a net return of 7.5%.

Using Leverage in Forex Trades

The forex market also offers tremendous leverage—often as high as 100:1—

which means that you can control $10,000 worth of assets with as little as $100
of capital. By comparison, stock traders are limited to 2:1 leverage. However,
leverage is a double-edged sword: it can create massive profits when you are
correct, but may also generate huge losses when you are wrong.

Even with relatively conservative 10:1 leverage, the 7.5% yield on NZD/JPY
pair would translate into a 75% return on an annual basis. So, if you were to
hold a 100,000 unit position in NZD/JPY using $5,000 worth of equity, you
would earn $9.40 in interest every day.

That’s $94 dollars in interest after only 10 days, or $3,760 annually—unless, of

course, the value of the New Zealand dollar were to fall, causing the trader to
lose all their collateral. By contrast, a bank savings account would offer
minimal interest, but it would be risk-free.

The use of leverage exacerbates any sort of market movements. However, these
losses can be capped through the use of stops. Furthermore, almost all forex
brokers offer the protection of a margin watcher—a piece of software that
watches your position and automatically liquidates it once margin requirements
are breached. This process ensures that your account will never post a negative
balance and your risk will be limited to the amount of money in your account.

How to Win with Carry Trades

The key to a successful carry trade is not simply to pair up a currency with a
high interest rate against a currency with a low one. It is far more important to
observe how the spread is changing: a successful carry trader would pair a
currency with a rising interest rate against a currency whose interest rate is
falling.

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This requires a good understanding of the underlying economics of the
countries in question. Generally speaking, countries that are performing very
well, with strong growth rates and increasing inflation will probably raise
interest rates to tame inflation and control growth.

The most profitable way to carry trades that benefit not only from a positive and
growing yield, but that also have the potential to appreciate in value. This is
important because just as currency appreciation can increase the value of your
carry trade earnings, currency depreciation can erase all of your carry trade
gains—and then some.

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Conclusion

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 BIBLIOGRAPHY

Secondary information –

Books on operation Management:

Basics of Operation Management: Study Guide

Fundamentals of Operation Management by John T Mentzer

Websites:

https://www.investopedia.com/ask/answers/06/buyandsellforex.asp

https://www.investopedia.com/terms/forex/f/forex-market.asp

https://www.vedantu.com/commerce/the-foreign-exchange-market

https://www.britannica.com/topic/foreign-exchange-market

https://backup.pondiuni.edu.in/storage/dde/downloads/ibiv_forex.pdf

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