Foreign Exchange Operations - Lecture Notes

Jul 30, 2024

Foreign Exchange Operations - Lecture Notes

Introduction

  • Topic: Foreign Exchange Operations
  • First lecture in the series.
  • Relevant for:
    • CAI and IIV professionals
    • Banking Financial Management (BFM) first module
    • IIBF certification course on Foreign Exchange Operations
  • Future videos to follow for deeper understanding.

What is Foreign Exchange?

  • Involves conversion of currencies from one country to another.
  • Essential for world trade, travel, and cross-border services.
  • Example:
    • Indian exporter receiving payment in USD, converts to INR.
    • Indian importer pays in INR to a German exporter needing EUR.
  • Definition:
    • Foreign Exchange = conversion of one country's currency into another.

Key Definitions

  • Foreign Currency:
    • Any currency other than Indian Rupee (INR) is considered foreign currency.
  • Foreign Exchange:
    • Includes both the foreign currency itself and the act of converting currencies.
    • Abbreviated as Forex or FX.

Currency Overview

  • Currency Basics:
    • Includes:
      • Currency notes
      • Postal notes
      • Money orders
      • Bills of exchange
      • Promissory notes
      • Credit cards
      • Other instruments
    • Currency notes encompass both paper money and coins.

Foreign Currency

  • Considered any currency from countries other than India (e.g., USD, GBP).
  • For foreign nations, Indian Rupee is their foreign currency.

Foreign Exchange Operations

Market Dynamics

  • Where currency conversions occur: Forex Market
  • Characteristics of the Forex Market:
    • Global and boundary-less.
    • Operates 24/7 across different time zones.
    • OTC Based: Operates over communication systems - telephone, internet, mobile apps.

Participants in Forex Market

  • Major Participants:
    • Central Banks (e.g., RBI in India)
    • Commercial Banks
    • Investment Funds and Banks
    • Forex Brokers
    • Large Corporations
    • Individual traders

Features of the Forex Market

  1. Works 24 hours, round the clock.
  2. Dynamic market where currency values change frequently (every few seconds).
  3. High liquidity with significant trading volume.
  4. Affected by government policies and regulations.

Conclusion

  • Reviewed the essence of Foreign Exchange and its operations.
  • Covered the importance of the Forex Market in currency transactions.
  • Future sessions will delve into specific operational aspects of Foreign Exchange.

Closing

  • Thank you for attending today's lecture.
  • Jai Hind!