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EXECUTIVE SUMMARY

The project undertaken is based on the study of foreign exchange market and risk management in general as well as in the forex market.

FOREIGN EXCHANGE MARKET: Foreign exchange market is a market where foreign currencies are bought & sold.

Foreign exchange market is a system facilitating mechanism through which

one countrys currency can be exchanged for the currencies of another country.

The purpose of foreign exchange market is to permit transfers of purchasing

power denominated in one currency to another i.e. to trade one currency for another. The project covers various trading areas of forex market such as Stock Market, Bond Market, Derivatives Markets. Derivative market has three sub markets, which are Future Contracts, Forward Contracts, Option Contract. It helps in understanding various trend patterns and trend lines. What considerations are kept in mind while trading in forex market and why one should enter such market is studied under this project.

Another part of this project covers Risk Management in general as well as in forex market.

Risk Management

is

the

process

of measuring, or assessing risk and

then

developing strategies to manage the risk. In general, the strategies employed include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk. A person has to face risk whether hes in business or is entering the forex market .So, he uses various strategies and methods to overcome that risk.

The data used in this project has been collected from websites based on related topics and various books of forex market and risk management. The information displayed may be limited, as each and every aspect related with the project that is provided by the available sources might not be complete in all respects.

Chapter 1 : Introduction to study


Barter was the form of exchanged used in the early days. These kinds of exchanges are still used today, known as commodities. Livestock was often used as a unit of exchange. However, as farmers started growing, people started to use crops for barter. A farmer could ask another farmer to trade a pound of apples for a pound of bananas. This type of action, we can say was the first domino that fell in order to start the development of markets such as the futures market. Also as a result of this currency started to appear. Cowry shells became the alleged form of money in starting in China.

It was in China that they also started to develop metal currency. They used tools of metal, like knives and spades, and from this models round coins were developed. The Chinese coins were usually made out of base metals which had holes in them so that you could put the coins together to make a chain. Chinese coins relied on base metals, but this was later developed in Europe to the use of scarce metals like gold and silver which had a lot of intrinsic value.

As these currencies started to developed and their values started to be pegged to these metals, it later turned out to be changed and then the value was tried to be controlled by the countries. Later the foreign exchange market, the mechanism by which currencies are valued relative to one another, and exchanged, was developed. An individual or institution buys one currency and sells another in a simultaneous transaction. The exchange rate is determined through the interaction of market forces dealing with supply and demand.

Traders generate profits, or lose, by speculating whether a currency will rise or fall in value compared to another currency. The value is a reflection on the condition of that countrys economy with respect to other major economies. However, the market does not rely on any one particular economy. A trader can earn money regardless of whether an economy is flourishing or falling. Forex has been dominated by inter-world investment and commercial banks, money portfolio managers, money brokers, large corporations. With the advances of internet technology and leverage options, more and more individual traders are getting 3

involved for the purpose of speculation. As other reasons such as facilitating commercial transactions exist for the participation in the Forex market, there exist a huge opportunity and profits for start of new firms with the proper knowledge and background. With this project our goal is to help the reader establish a Forex firm if so desired.

OBJECTIVE

The principal objective of this Research is to exhibit the most feasible

method to establish a Forex Scenario in Indian Economy.

To have a knowledge of different types of forex markets and various

quotations in Forex markets.

To study risk in the Forex market as well as volatility in Forex market.

To have a knowledge of how people trade in forex market.

different markets.

To study various strategies of risk management.

RESEARCH METHODOLOGY

For making the research methodology of project Data is collected by both primary & secondary

i.

Primary Interviews Questionnaire

ii.

Secondary Newspaper Books Bank prospectus Internet or website Bank bulletins