CAIIB-BFM (TOPIC: FOREIGN EXCHANGE MARKET)
FOREX as defined in FEMA means Foreign Currency & Includes:
1.All Deposits, Credits, Balance Payable in any Foreign Currency & Drafts, Travelers Cheques, Letters of Credit & Billes of Exchange Expressed/Drawn in Indian Currency & Payable in Foreign Currency.
2.Any Instruments Payable at the option of the Drawee/Holder, thereof/any other Party thereto, either in Indian Currency/Foreign Currency/Party in 1 & Party in tie other.
In short term FOREX means the process of converting 1 National Currency into another National Currency & transferring Money. In such conversions, the Foreign Currency is always treated as a Commodity & the Home Currency as the medium of purchasing Power.
FOREX MARKET & ITS PARTICIPANTS:
Banks & Customers who've to Buy/Sell FOREX. Inter-Bank dealings where Sale & Purchase Business is transacted between the Bank themselves within the Country. Dealings between Domestic & Foreign Banks.
TYPES OF FOREX TRANSACTIONS:
-Inter-Bank Transaction: Sale/Purchase of FX between Banks & Financial Institutions (Market Participants).
-Merchant Transaction: Sale/Purchase transaction with the Customers are called Merchant Transaction.
FACTORS AFFECTING EXCHANGE RATES: Exchange Rates in the Market are the outcome of the combined effect of a Multiple of Factors. They can be classified as Fundamental, Technical & Speculative Factors.
The Factors are:
- BOP: Surplus BOP in a Courtry strengthens its Currency.
- Economic Growth Rate: High Growth Rate fuels Imports & weakens the Local Currency.
- Fiscal Policy: An expansionary Policy, normally leads to a Higher Economic Growth which in turn fuels Imports.
- Monetary Policy: Central Banks determine monetary measures to Influence & Control Interest & Money Supply.
- Interest Rates: Domestic Interest Rates if High, attracts overseas capital (FDI, FII) leading to an excess supply of Foreign Currencies resulting into appreciation of Domestic Currency in short term. However if High Interest Rates continue for a long term, Economy will slow down, weakening the Currency.
- Political Issues: without Political Stability there can be no Economic Stability (detrimental to the Value of Currenc- Political Issues: without Political Stability there can be no Economic Stability (detrimental to the Value of Currency).
- Technical Reasons in Exchange Rate Determination: Govt. controls which determine the Inflow & Outflow of Capital are considered Technical Reasons.
- Speculation Major Factor in Exchange Rate Determination: Speculative trading is a Reality in FOREX Markets. Its estimated that the speculative trade to daily FOREX turnover is above 90%.
CORRESPONDENTS OF A/C'S: Banks dealing in International Trade & FOREX maintain A/c's in various Foreign Countries for the purposes of settlements. They also enter in into drawing arrangements such as Overnight/Regular Overdrafts Limits, agency arrangements for International Remittances collection of Cheques/Bills etc. The International Banks involved are termed as Foreign Correspondents & the concept of providing such services is called as Correspondent Banking. In a Correspondent Banking relation its not always necessary that an A/c relationship should exist. Some of the services can be rendered without an A/c. However for arrangements like Cheque Clearngog, OD Arrangements A/c's are CORRESPONDENTS OF A/C'S: Banks dealing in International Trade & FOREX maintain A/c's in various Foreign Countries for the purposes of settlements. They also enter in into drawing arrangements such as Overnight/Regular Overdrafts Limits, agency arrangements for International Remittances collection of Cheques/Bills etc. The International Banks involved are termed as Foreign Correspondents & the concept of providing such services is called as Correspondent Banking. In a Correspondent Banking relation its not always necessary that an A/c relationship should exist. Some of the services can be rendered without an A/c. However for arrangements like Cheque Clearngog, OD Arrangements A/c's are needed.
The A/c's when maintained by Banks in Correspondent Relationship are classified as follows:
1. NOSTRO ACCOUNTS: NOSTRO A/c's means OUR A/C WITH YOU. Its a Foreign Currency A/c maintained by a Bank in domestic country with a Bank in Foreign Country.
2. VOSTRO ACCOUNTS: VOSTRO A/c's means YOUR A/C WITH US. Its an A/c of a Foreign Bank being maintained in Our Country & with Our Bank. When VOSTRO A/c's are opened, KYC norms are compulsory in India. VOSTRO A/c's are to be operated in line with RBI Guidelines.
3. LORO ACCOUNTS: LORO A/c's means THEIR A/C WITH THEN. This's an A/c of a 3rd Bank being maintained by another/our Bank.
4. MIRROR ACCOUNTS: These are Dummy A/c's maintained by Banks to know actual position of their A/c's with the Foreign Correspondent Banks. We may call it a Pass-Book of Our A/c's maintained with the Correspondents...
FOREX as defined in FEMA means Foreign Currency & Includes:
1.All Deposits, Credits, Balance Payable in any Foreign Currency & Drafts, Travelers Cheques, Letters of Credit & Billes of Exchange Expressed/Drawn in Indian Currency & Payable in Foreign Currency.
2.Any Instruments Payable at the option of the Drawee/Holder, thereof/any other Party thereto, either in Indian Currency/Foreign Currency/Party in 1 & Party in tie other.
In short term FOREX means the process of converting 1 National Currency into another National Currency & transferring Money. In such conversions, the Foreign Currency is always treated as a Commodity & the Home Currency as the medium of purchasing Power.
FOREX MARKET & ITS PARTICIPANTS:
Banks & Customers who've to Buy/Sell FOREX. Inter-Bank dealings where Sale & Purchase Business is transacted between the Bank themselves within the Country. Dealings between Domestic & Foreign Banks.
TYPES OF FOREX TRANSACTIONS:
-Inter-Bank Transaction: Sale/Purchase of FX between Banks & Financial Institutions (Market Participants).
-Merchant Transaction: Sale/Purchase transaction with the Customers are called Merchant Transaction.
FACTORS AFFECTING EXCHANGE RATES: Exchange Rates in the Market are the outcome of the combined effect of a Multiple of Factors. They can be classified as Fundamental, Technical & Speculative Factors.
The Factors are:
- BOP: Surplus BOP in a Courtry strengthens its Currency.
- Economic Growth Rate: High Growth Rate fuels Imports & weakens the Local Currency.
- Fiscal Policy: An expansionary Policy, normally leads to a Higher Economic Growth which in turn fuels Imports.
- Monetary Policy: Central Banks determine monetary measures to Influence & Control Interest & Money Supply.
- Interest Rates: Domestic Interest Rates if High, attracts overseas capital (FDI, FII) leading to an excess supply of Foreign Currencies resulting into appreciation of Domestic Currency in short term. However if High Interest Rates continue for a long term, Economy will slow down, weakening the Currency.
- Political Issues: without Political Stability there can be no Economic Stability (detrimental to the Value of Currenc- Political Issues: without Political Stability there can be no Economic Stability (detrimental to the Value of Currency).
- Technical Reasons in Exchange Rate Determination: Govt. controls which determine the Inflow & Outflow of Capital are considered Technical Reasons.
- Speculation Major Factor in Exchange Rate Determination: Speculative trading is a Reality in FOREX Markets. Its estimated that the speculative trade to daily FOREX turnover is above 90%.
CORRESPONDENTS OF A/C'S: Banks dealing in International Trade & FOREX maintain A/c's in various Foreign Countries for the purposes of settlements. They also enter in into drawing arrangements such as Overnight/Regular Overdrafts Limits, agency arrangements for International Remittances collection of Cheques/Bills etc. The International Banks involved are termed as Foreign Correspondents & the concept of providing such services is called as Correspondent Banking. In a Correspondent Banking relation its not always necessary that an A/c relationship should exist. Some of the services can be rendered without an A/c. However for arrangements like Cheque Clearngog, OD Arrangements A/c's are CORRESPONDENTS OF A/C'S: Banks dealing in International Trade & FOREX maintain A/c's in various Foreign Countries for the purposes of settlements. They also enter in into drawing arrangements such as Overnight/Regular Overdrafts Limits, agency arrangements for International Remittances collection of Cheques/Bills etc. The International Banks involved are termed as Foreign Correspondents & the concept of providing such services is called as Correspondent Banking. In a Correspondent Banking relation its not always necessary that an A/c relationship should exist. Some of the services can be rendered without an A/c. However for arrangements like Cheque Clearngog, OD Arrangements A/c's are needed.
The A/c's when maintained by Banks in Correspondent Relationship are classified as follows:
1. NOSTRO ACCOUNTS: NOSTRO A/c's means OUR A/C WITH YOU. Its a Foreign Currency A/c maintained by a Bank in domestic country with a Bank in Foreign Country.
2. VOSTRO ACCOUNTS: VOSTRO A/c's means YOUR A/C WITH US. Its an A/c of a Foreign Bank being maintained in Our Country & with Our Bank. When VOSTRO A/c's are opened, KYC norms are compulsory in India. VOSTRO A/c's are to be operated in line with RBI Guidelines.
3. LORO ACCOUNTS: LORO A/c's means THEIR A/C WITH THEN. This's an A/c of a 3rd Bank being maintained by another/our Bank.
4. MIRROR ACCOUNTS: These are Dummy A/c's maintained by Banks to know actual position of their A/c's with the Foreign Correspondent Banks. We may call it a Pass-Book of Our A/c's maintained with the Correspondents...
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