Transcript Exchange Market as a Part of International Financial

Exchange Market as a Part of
International Financial Markets,
Participants and Functions of
Exchange Market
Matúš Czakó
Ján Lajda
Structure:
Global Financial Markets
Foreign Exchange Market
Nature of Foreign Exchange market
Functions of Exchange Market
Types of Exchange markets
Market Participants
Global Financial Markets
►
The global financial markets include the market for foreign
exchange, the Eurocurrency and related money markets,
the international capital markets, notably the Eurobond
and global equity markets, the commodity market and last
but not least, the markets for forward contracts, options,
swaps and other derivatives
►
The aim of Financial Market is to construct a story
employing the most current state of the art in the markets
themselves with a solid foundation of theory.
Global Financial Markets
► The
institutions that dominated global finance in
earlier decades - commercial banks and
supranational organizations have been displaced
by disintermediated, private finance.
► There
has been shift of expertise and market
power away from banks and towards corporations.
► Many
have developed capabilities in risk
management instruments, such as options, swaps
and more complex derivatives.
Foreign Exchange Market
► The
foreign exchange market is where
currency trading takes place.
► It
is where banks and other official
institutions facilitate the buying and selling
of foreign currencies
► FX
transactions typically involve one party
purchasing a quantity of one currency in
exchange for paying a quantity of another
Foreign Exchange Market
► Now,
the FX market is one of the largest and most
liquid financial markets in the world, and includes
trading between large banks, central banks,
currency speculators, corporations, governments,
and other institutions.
► The
purpose of FX market is to facilitate trade and
investment. The need for a foreign exchange
market arises because of the presence of
multifarious international currencies such as US
Dollar, Pound Sterling, etc., and the need for
trading in such currencies.
Nature of Foreign Exchange market
► The
foreign exchanged is a universal network of
brokers, banks, businessmen and the exchange
owners who are connected with a system
internationally so any one connected to the foreign
market which can involve in the different business
of foreign exchange rates.
► It is very diversified and different for the business
purpose.
► The
main characteristics of the foreign exchange
market are that it does not take any rest it is the
continuous business in the world.
Functions of Exchange Market
► The
basic and primary function of a foreign
exchange market is to transfer purchasing power
between countries
► Another
important function of foreign exchange
market is to provide credit to the importer debtor
► The
foreign exchange market performs the
hedging function covering the risks on foreign
exchange transactions
Functions of Exchange Market
► here
► 1.
are two foreign exchange perspectives:
Competitive market : Real world Foreign
Exchange market confirm closely to the market
that is competitive by nature.
► 2.Linkages
to the domestic and foreign prices: The
market price or the exchange rate a nations‘
currency is an unusual price. It links all the
domestic with the foreign prices
Types of Exchange markets
►
1. Spot market :
It is a securities or commodities market where goods,
both perishable and non-perishable, are sold for cash
and delivered immediately or within a short period of
time.
►
2. Forvard market:
Forward contracts are personalized between parties and
therefore not frequently traded on exchanges. The
forward market is a general term used to refer to the
informal market in which these contracts are entered and
exited.
Types of Exchange markets
►
3. Derivatives market:
It is meant as the market where exchange of derivatives
takes place. Derivatives are one type of securities whose
price is derived from the underlying assets
The Derivative Market can be classified as Exchange
Traded Derivatives Market and Over the Counter
Derivative Market.
Market Participants
► Banks
► Commercial
companies
► Central banks
► Hedge funds as speculators
► Investment management firms
► Retail foreign exchange brokers
► Other
Market Participants
1. Banks:
The interbank market caters for both the majority
of commercial turnover and large amounts of
speculative trading every day. A large bank may
trade billions of dollars daily
2. Commercial companies:
They often trade fairly small amounts compared to
those of banks or speculators, and their trades
often have little short term impact on market rates
Market Participants
3. Central banks:
National central banks play an important role in the foreign
exchange markets. They try to control the money supply,
inflation, and/or interest rates and often have official or
unofficial target rates for their currencies. They can use
their often substantial foreign exchange reserves to
stabilize the market.
4. Hedge funds as speculators:
About 70% to 90% of the foreign exchange transactions
are speculative. the person or institution that bought or
sold the currency has no plan to actually take delivery of
the currency in the end; rather, they were solely
speculating on the movement of that particular currency.
Market Participants
5. Investment management firms:
These use the foreign exchange market to facilitate
transactions in foreign securities. For example, an
investment manager bearing an international equity
portfolio needs to purchase and sell several pairs of foreign
currencies to pay for foreign securities purchases.
6. Retail foreign exchange brokers:
Retail brokers and market makers typically trade against
their clients and frequently take the other side of their
trades. This can often create a potential conflict of interest
and give rise to some of the unpleasant experiences some
traders have had.
Market Participants
7. Other:
Non-bank foreign exchange companies offer currency
exchange and international payments to private individuals
and companies. These are also known as foreign exchange
brokers but are distinct in that they do not offer
speculative trading but currency exchange with payments.
Sources:
►
WEI, S. - KIM, J.: The Big players in the foreing exchange market. Cambridge :
National Bureau of economy, 1997. 367 s.
►
KRUGMAN, P. - OBSTFELD, M.: International Economics - theory and policy.
Boston : Library of Congress Cataloging-in-Publication Data, 2000. 754 s
►
CHRISTOFFERSEN, P. - DIEBOLD, F.: Financial Asset Returns, Direction-ofChange Forecasting, and Volatility Dynamics . University of Pennsylvania :
National Bureau of Economy in Pennsylvania, 2004. 650 s.
►
http://www.blurtit.com/q144843.html
►
http://www.wisegeek.com/what-is-the-spot-market.htm
►
http://en.wikipedia.org/wiki/Foreign_exchange_market#Market_participants
Thank you for your attention 