The Market For Foreign Exchange Report

BAFM41S2
FOR
FOREIGN EXCHANGE
Cabang, Grazhel France
Deala, Jackielyn
Siena, Rea Mae
INTENDED LEARNING OUTCOMES
● Discuss what is Foreign Exchange Market

● Functions of the Foreign Exchange Market
● Structure of the Foreign Exchange Market
○ FX Market Participants
○ Correspondent Banking Relationships
FOREIGN EXCHANGE MARKET
● A market in which one currency

is exchanged for another
currency
“MONEY REPRESENTS
PURCHASING”
—
purchase goods and services produced by the residents of

$ another country generally requires first purchasing the
other country’s currency
More formally, one’s own currency has been used to buy

% foreign exchange , and in doing so the buyer has converted
his purchasing power into the purchasing power of the
seller’s country.
THE MARKET FOR
FOREIGN EXCHANGE
The market for foreign exchange is
the largest financial market in the
world by virtually any standard. It is
open somewhere in the world 365
days a year, 24 hours a day.
THE MARKET FOR
FOREIGN EXCHANGE
● The increase in turnover can be attributed
to an increase in trading activity by
financial institutions other than reporting
dealers.
● London remains the world’s largest
foreign exchange trading center.
FOREIGN EXCHANGE (FX) MARKET
The foreign exchange (FX)

market involves currency
exchanges, bank deposits of
foreign currency, credit
extensions denominated in
foreign currencies, financing
for international trade, trading
in foreign currency options
and futures contracts, and
currency swaps.
FUNCTION AND
STRUCTURE OF
THE FX
MARKET
FUNCTION AND STRUCTURE
OF FX MARKET
The structure of the foreign exchange

market is an outgrowth of one of the
primary functions of a commercial
banker: to assist clients in the conduct
of international commerce.
OF FX MARKET
The spot and forward foreign
exchange markets are
over-the-counter (OTC) markets;
that is, trading does not take place
in a central marketplace where
buyers and sellers congregate.
The foreign exchange market is a worldwide

linkage of bank currency traders, nonbank dealers,
and FX brokers, who assist in trades, connected to
one another via a network of telephones, computer
terminals, and automated dealing systems.
OF FX MARKET
The forward market

The spot market is
is for exchanging
for currency exchange
currencies at a set
“right now”
rate in the “future”
“The
Mouse
Takes Over
the Floor”
THE MOUSE TAKES OVER THE FLOOR
● Electronic trading, symbolized as 'The Mouse,' arrived,

and things changed.
● The noisy trading floor turned into a quiet office.
● This change started back in the 1980s when Thomson
Reuters introduced screen-based trading for the interbank
market (where most currency trading happens).
○ They faced competition from Electronic Broking
Services (EBS) in the 1990s, which aimed to prevent
Thomson Reuters from having a monopoly.
Foreign Exchage Market
Wholesale or Retail or
Interbank Client
Market Market
FX Market Participants
International Banks
Bank Customers
Nonbank Dealers
FX Brokers
Central Banks
International Banks
● Provide the core of the FX market

● 100 to 200 banks worldwide actively “make a market"
● Buy or sell foreign currency for their own account
Bank Customers
● International Banks’ Retail Clients

● Foreign Commerce
● International Investments
Nonbank Dealers
● Large nonbank financial institution

● Cost-effective to establish dealing rooms
● Trade directly in the interbank market
FX Brokers
● Match dealer orders to buy and sell currencies for a fee

● Have knowledge of the quotes offered in the market
Central Bank
● National Monetary Authority

● Intervened in the FX market
● Attempt to influence the price of currency against that
of a major trading partner, or a country that it “fixes” or
"pegs” its currency against
Intervention is the process of using foreign currency reserves to

buy one’s own currency in order to decrease its supply and thus
increase its value in the foreign exchange market.
Correspondent Banking
Relationship
The interbank market is a network of correspondent
banking relationships, with large commercial banks
maintaining demand deposit accounts with one
another, called correspondent banking accounts. The
correspondent bank account network allows for the
efficient functioning of the foreign exchange market.
THANKS!
DO YOU HAVE ANY QUESTIONS?
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BAFM41S2
GROUP
ACTIVITY
TRUE OR FALSE
TRUE OR FALSE
1.) Foreign exchange market is

the market in which
currencies are traded.
TRUE OR FALSE

the market in which
currencies are traded.
(TRUE)
TRUE OR FALSE
2.) Before purchasing goods and

services produced by residents of
another countries it is not requires to
purchase first the other countries
currency.
TRUE OR FALSE
2.) Before purchasing goods and

services produced by residents of
another countries it is not requires to
purchase first the other countries
currency.
(FALSE)
TRUE OR FALSE

the largest financial market in
the world by virtually any
standard.
TRUE OR FALSE

the largest financial market in
the world by virtually any
standard.
(TRUE)
TRUE OR FALSE
4.) New York remain the world

largest foreign exchange
trading center.
TRUE OR FALSE
4.) New York remain the world

largest foreign exchange
trading center.
(FALSE)
TRUE OR FALSE
5.) In the market of foreign

exchange, money represent
purchasing.
TRUE OR FALSE
5.) In the market of foreign

exchange, money represent
purchasing.
(TRUE)
TRUE OR FALSE
6.) The spot market

is a later market.
TRUE OR FALSE
6.) The spot market

is a later market.
(FALSE)
TRUE OR FALSE
7.) The spot and forward

foreign exchange markets are
over-the-counter (OTC)
markets
TRUE OR FALSE
7.) The spot and forward

foreign exchange markets are
over-the-counter (OTC)
markets.
(TRUE)
TRUE OR FALSE
8.) The structure of the foreign

exchange market is an outgrowth of
one of the primary functions of a
commercial banker
TRUE OR FALSE
8.) The structure of the foreign

exchange market is an outgrowth of
one of the primary functions of a
commercial banker
(TRUE)
TRUE OR FALSE
9.) Electronic trading,

symbolized as 'The Mouse,'
arrived, and things don’t
changed
TRUE OR FALSE
9.) Electronic trading,

symbolized as 'The Mouse,'
arrived, and things don’t
changed
(FALSE)
TRUE OR FALSE
10.) Because of the mouse

takes over the floor, traders
now sit quietly in front of
computer screens
TRUE OR FALSE
10.) Because of the mouse

takes over the floor, traders
now sit quietly in front of
computer screens
(TRUE)
TRUE OR FALSE
11.) Intervention is the process of using

foreign currency reserves to buy one’s
own currency in order to decrease its
supply and thus increase its value in
the foreign exchange market.
TRUE OR FALSE
11.) Intervention is the process of using

foreign currency reserves to buy one’s
own currency in order to decrease its
supply and thus increase its value in
the foreign exchange market.
(TRUE)
TRUE OR FALSE
12.) Foreign exchange market

participants can be categorized
into five groups.
TRUE OR FALSE
12.) Foreign exchange market

participants can be categorized
into five groups.
(TRUE)
TRUE OR FALSE
13.) Nonbank dealers have

knowledge of the quotes
offered in the market.
TRUE OR FALSE
13.) Nonbank dealers have

knowledge of the quotes
offered in the market.
(FALSE)
TRUE OR FALSE
14.) International banks has intervened

in the foreign exchange market in an
attempt to influence the price of its
currency against that of a major
trading partner.
TRUE OR FALSE
14.) International banks has intervened

in the foreign exchange market in an
attempt to influence the price of its
currency against that of a major
trading partner.
(FALSE)
TRUE OR FALSE
15.) The correspondent bank

account network allows for the
efficient functioning of the
foreign exchange market.
TRUE OR FALSE
15.) The correspondent bank

account network allows for the
efficient functioning of the
foreign exchange market.
(TRUE)

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BAFM41S2

● Discuss what is Foreign Exchange Market

● A market in which one currency

purchase goods and services produced by the residents of

More formally, one’s own currency has been used to buy

The foreign exchange (FX)

The structure of the foreign exchange

The foreign exchange market is a worldwide

The forward market

● Electronic trading, symbolized as 'The Mouse,' arrived,

● Provide the core of the FX market

● International Banks’ Retail Clients

● Large nonbank ﬁnancial institution

● Match dealer orders to buy and sell currencies for a fee

● National Monetary Authority

Intervention is the process of using foreign currency reserves to

CREDITS: This presentation template was created by Slidesgo,

1.) Foreign exchange market is

1.) Foreign exchange market is

2.) Before purchasing goods and

2.) Before purchasing goods and

3.) Foreign exchange market is

3.) Foreign exchange market is

4.) New York remain the world

4.) New York remain the world

5.) In the market of foreign

5.) In the market of foreign

6.) The spot market

6.) The spot market

7.) The spot and forward

7.) The spot and forward

8.) The structure of the foreign

8.) The structure of the foreign

9.) Electronic trading,

9.) Electronic trading,

10.) Because of the mouse

10.) Because of the mouse

11.) Intervention is the process of using

11.) Intervention is the process of using

12.) Foreign exchange market

12.) Foreign exchange market

13.) Nonbank dealers have

13.) Nonbank dealers have

14.) International banks has intervened

14.) International banks has intervened

15.) The correspondent bank

15.) The correspondent bank

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