Foreign Exchange Report

Contents
INTRODUCTION 3
Definition 3
FOREIGN EXCHANGE MARKET OVERVIEW 3
Characteristics of Foreign Exchange Market 5
FOREIGN EXCHANGE RISKS 6
Accounting Risk 6
Transaction Risk 6
Profitability Risk 6
DETERMINANTS OF EXCHANGE RATE 6
Inflation 6
Interest Rates 7
Current-Account Deficits 7
PARTICIPANTS IN FOREIGN EXCHANGE MARKET 7
Customers 8
Commercial Banks 8
Exchange Brokers 8
Overseas Forex Market 8
Speculators 9
ROLE OF SBP IN FOREIGN EXCHANGE MARKET 9
To manage the exchange rate mechanism 9
Regulate inter-bank Forex transactions 10
Keep the exchange rate stable 10
Manage and maintain country's foreign exchange reserves 10
FOREIGN EXCHANGE INSTRUMENTS 10
Spot 10
Forward 10
Future 11
Option 11
FX MARKET PERFORMANCE IN PAKISTAN 11
Highlights of Pakistan economic survey 2013-14 11
FOREX TRADING MECHANISM 14
TRADING TERMS 15
Base/Quote Currency 16
Pip 16
Spread 16
Hedging 16
Lot 16
Rollover/Swap 16
Leverage 16
Long 16
Short 16
Margin Call 17
FX USE IN BANK AL-HABIB: 17
RISK FACTORS 17

INTRODUCTION
Definition
Foreign exchange is the mechanism by which the currency of one country gets converted into the currency of another country.
The conversion of currency is done by the banks who deal in foreign exchange. These banks maintain stocks of one currency in the form of balances with banks.
Foreign exchange markets help in:
Facilitating foreign trade
Companies which import or export the product and services need to change foreign currency into domestic or domestic into foreign currency to avail the services.
Facilitate raising capital in foreign exchange markets
By purchasing dollars through PKR an individual can invest in foreign security or stock.
Facilitate transfer of risk between market participants
By fixing the rate of exchange for future transaction a participant can decrease the risk that it could have faced by buying in future on future rate.
Facilitate speculation in currency values
Anyone interested in making profit by continuous rise and fall of