CHAPTER-I

INTRODUCTION
1
1. INTRODUCTION
1.1 FOREX MARKET:
The foreign exchange market or Currency market is a global, worldwide
decentralized over the-counter financial market for trading currencies. Financial
centers around the world function as anchors of trading between a wide range of
different tyes of buyers and sellers around the clock, with the excetion of
weekends.
The foreign exchange market determines the relative values of different
currencies. The rimary urose of the foreign exchange is to assist international
trade and investment, by allowing businesses to convert one currency to another
currency. For examle, it ermits a !" business to imort #ritish goods and ay
$ound "terling, even though the business%s income is in !" dollars.
The foreign exchange market or Currency market is a global, worldwide
decentralized over the-counter financial market for trading currencies. Financial
centers around the world function as anchors of trading between a wide range of
different tyes of buyers and sellers around the clock, with the excetion of
weekends. The foreign exchange market determines the relative values of different
currencies. The rimary urose of the foreign exchange is to assist international
trade and investment, by allowing businesses to convert one currency to another
currency.
For examle, it ermits a !" business to imort #ritish goods and ay
$ound "terling, even though the business&s income is in !" dollars. 't also suorts
direct seculation in the value of currencies, and the carry trade, seculation on the
change in interest rates in two currencies. 'n a tyical foreign exchange transaction, a
arty urchases a (uantity of one currency by aying a (uantity of another currency.
The modern foreign exchange market began forming during the 1)*+s after three
decades of government restrictions on foreign exchange transactions ,the #retton
-oods system of monetary management established the rules for commercial and
financial relations among the world%s ma.or industrial states after -orld -ar ''/,
when countries gradually switched to floating exchange rates from the revious
exchange rate regime, which remained fixed as er the #retton -oods system.
0
1.2 FOREX MARKET IN INDIA:
The Foreign 1xchange market, also referred to as the 2Forex2 or 2FX2
market is the largest financial market in the world, with a daily average turnover of
US$1.9 triio! 3 4+ times larger than the combined volume of all !.". e(uity
markets and the daily average turnover in foreign exchange market in 'ndia declined
around 4+ er cent to 50*.6 billion in 7ril 0+16 from 548.6 billion in 7ril 0+11.
'nterestingly, the daily average turnover in !"9:';< air in 0+16 is
higher at $"# $iio!. "ince not all the trading in foreign exchange market in 'ndia is
in !"9:';< air alone, it can be assumed that more than 04 er cent of the trading in
the !"9:';< air takes lace overseas.
=arket share of 04 emerging market currencies increased to 16 er cent in
7ril 0+16 from 10.4 in the same month three years ago. >argest increases in
emerging market currencies were in Turkish lira, ?orean won, #razilian real and
"ingaore dollar. @Foreign 1xchange2 is the simultaneous buying of one currency
and selling of another. Currencies are traded in airs, for examle 1uro:!" 9ollar
,1!<:!"9/ or !" 9ollar:Aaanese Ben ,!"9:A$B/.
There are two reasons to buy and sell currencies. 7bout CD of daily
turnover is from comanies and governments that buy or sell roducts and services in
a foreign country or must convert rofits made in foreign currencies into their
domestic currency. The other )CD is trading for rofit, or seculation.
For seculators, the best trading oortunities are with the most commonly
traded ,and therefore most li(uid/ currencies, called 2the =a.ors.2 Today, more than
8CD of all daily transactions involve trading of the =a.ors, which include the !"
9ollar, Aaanese Ben, 1uro, #ritish $ound, "wiss Franc, Canadian 9ollar and
7ustralian 9ollar.
7 true 06-hour market, Forex trading begins each day in "ydney, and
moves around the globe as the business day begins in each financial center, first to
Tokyo, >ondon, and ;ew Bork. !nlike any other financial market, investors can
resond to currency fluctuations caused by economic, social and olitical events at
the time they occur - day or night.
4
The FE market is considered an Fver the Counter ,FTC/ or &interbank&
market, due to the fact that transactions are conducted between two counterarts over
the telehone or via an electronic network. Trading is not centralized on an exchange,
as with the stock and futures markets.
1." SI%NIFICANCE OF THE STUD&
The world nations are increasingly becoming more interrelated global trade, and
global investment. These international result in cross country flow of world nations.
Countries hold currencies of other countries and that a market, dealing of foreign
exchange results.
Foreign exchange means reserves of foreign currencies. =ore atly, foreign
exchange refers to claim to foreign money balances. Foreign exchange gives resident
of one country a financial claim on other country or countries. 7ll deosits, credits
and balances ayable in foreign currency and any drafts, travelers% che(ues, letters of
credit and bills of exchange ayable in foreign currency constitute foreign exchange.
Foreign exchange market is the market where money denominated in one currency is
bought and sold with money denominated in another currency.
Transactions in currencies of countries, arties to these transactions, rates at
which one currency is exchanged for other or others, ramification in these rates,
derivatives to the currencies and dealing in them and related asects constitute the
foreign exchange ,in short, forex/ market.
Foreign exchange transactions take lace whenever a country imorts goods and
services, eole of a country undertake visits to other counties, citizens of a country
remit money abroad for whatever urose, business units set u foreign subsidiaries
and so on. 'n all these cases the nation concerned buys relevant and re(uired foreign
exchange, in exchange of its currency, or draws from foreign exchange reserves built.
Fn the other hand, when a country exorts goods and services to another country,
when eole of other countries visit the country, when citizens of the country settled
abroad remit money homewards, when foreign citizens, firms and institutions invest
6
in the country and when the country or its business community raises funds from
abroad, the country%s currency is bought by others, giving foreign exchange, in
exchange. =ultinational firms oerate in more than one country and their oerations
involve multile foreign currencies. Their oerations are influenced by olitics and
the laws of the counties where they oerate. Thus, they face higher degree of risk as
comared to domestic firms.
7 matter of great concern for the international firms is to analyze the
imlications of the changes in interest rates, inflation rates and exchange rates on
their decisions and minimize the foreign exchange risk. The imortance of the study
is to know the features of foreign exchange and the factors creating risk in foreign
exchange transactions and the techni(ues used for managing that risk
C
1.' INDUSTR& PROFI(E
T)e I!*i+! ,+!-i!. E!/iro!0e!t
=odern banking in 'ndia started in the early 18th century1. Today, banks are among
the main articiants of the financial system in 'ndia.
,ANKIN% STRUCTURE
The commercial banking structure in 'ndia consists ofG "cheduled Commercial #anks
H !nscheduled #anks, with the <eserve #ank of 'ndia ,<#'/ as the aex governing
body. <#' has licensing owers H the authority to conduct insections on other
banks. The chart below deicts the 'ndian banking industry. The figures in brackets
are the number of banks in each category.
I
Cooerative
<ural
Cooeratives
$ublic
"ector
No!-S1)e*2e*
,+!-3
Foreign
#anks
,41/
>ocal 7reas
#anks ,6/
Commercial
$rivate
"ector ,00/
!rban
Cooeratives
S1)e*2e* ,+!-3
RESER4E ,ANK OF INDIA
Central #ank and sureme monetary authority
;ationalized #anks "#' H 7ssociates <egional <ural
,1)/ ,*/ #anks ,80/
<#' is the aex governing body in the 'ndian #anking industry. 't formulates
guidelines from time to time to ensure a clean banking environment. 't is resonsible
for overseeing the activities of other banks. 't issues licenses to other banks to start
new branches, install 7T=s etc. 't also conducts regular checks to ensure that all
guidelines are being adhered to. 't is resonsible for controlling the money suly in
the economy.
No!-S1)e*2e* ,+!-3
These are banks, which are not included in the "econd "chedule of the <eserve #ank
of 'ndia 7ct, 1)46, as they do not satisfy the conditions laid down by that schedule.
S1)e*2e* ,+!-3
"cheduled #anks are those, which are included in the "econd "chedule of the
<eserve #ank of 'ndia 7ct, 1)46. >ooking at the sniet on the right, it is aarent
that all big banks are scheduled banks. They can be classified further as Commercial
#anks and Cooerative #anks.
Coo5er+ti/e ,+!-3
7 non-commercial bank registered under the "tate Co-Ferative "ocieties 7ct or the
=ulti "tate cooerative "ocieties 7ct.
Co00er1i+ ,+!-3
Forei.! ,+!-3: These are banks that were incororated outside 'ndia but
have branches within the country. For examle, 7#; 7mro, #;$ $aribas,
etc.
P2$i1 Se1tor ,+!-3G #anks in which the government has got ma.ority
shareholdings are known as $ublic "ector #anks. This grou consists of "#'
and its 7ssociates, <egional <ural #anks, and other ;ationalized #anks.
St+te ,+!- o6 I!*i+ +!* it3 A33o1i+te3: This grou comrises of the "tate
#ank of 'ndia ,"#'/ and its six 7ssociates.
*
Re.io!+ R2r+ ,+!-3: These banks were established as er the rovisions of the
<egional <ural #anks 7ct, 1)*I. 7 <egional <ural #ank is a .oint ownershi
between the Central Jovernment, the "tate Jovernment and a sonsoring bank in the
ratio C+G1CG4C. <<#s were established to oerate exclusively in rural areas to rovide
credit and other facilities to small and marginal farmer, agricultural labourers,
artisans and small entrereneurs.
;ationalized #anksG This grou consists of erstwhile rivate sector banks that
were brought under government control. The Jovernment of 'ndia
;ationalized 16 rivate banks in 1)I) and another I in the year 1)8+, of
which, ;ew #ank of 'ndia was merged with $un.ab ;ational #ank.
Fld $rivate "ector #anksG This grou consists of banks that were established
by the rivy states, community organizations or by a grou of rofessionals
for the cause of economic betterment in their areas of oeration. 'nitially their
oerations were concentrated in a few regional areas. Kowever, their branches
slowly sread throughout the nation as they grew. These #anks are registered
as comanies under the Comanies 7ct 1)CI and were incororated rior to
1))6.
;ew $rivate "ector banksG <#' ermitted formation of new rivate sector
#anks after acceting the recommendations of N+r+3i0)+0 Co00ittee
with an ob.ective to bring more cometition and efficiency in the banking
sector. These banks were started as rofit oriented ublic limited comanies.
These banks are technology-driven and thus usually better managed than
other banks. 7xis #ank is among the first banks to start oerations as a new
generation $rivate sector bank. ;ew $rivate "ector #anks came into existence
after 1))6.
8
1.7 STRUCTURE OF FOREX MARKET
M+i! P+rti1i5+!t3 I! Forei.! Ex1)+!.e M+r-et3
There are four levels of articiants in the foreign exchange market.
7t the 6ir3t e/e are tourists, imorters, exorters, investors, and so on. These are the
immediate users and suliers of foreign currencies. 7t the 3e1o!* e/e are the
commercial banks, which act as clearing houses between users and earners of foreign
exchange. 7t the t)ir* e/e are foreign exchange brokers through whom the nation%s
)
Forei.! Ex1)+!.e M+r-et
I!ter$+!-
,+!- +11o2!t or
*e5o3it3
S5ot
Deri/+ti/e3
8F2t2re39 o5tio!3
et1.:
Ce!tr+
,+!-
Dire1t
;)oe3+e
,+!- +!* 0o!e< 1)+!.er3
8C2rre!1ie39 $+!- !ote 1)e=2e:
Ret+i
I!*ire1t
8T)ro2.) $ro-er3:
For>+r*
8O2tri.)t ? S>+53:
Mer1)+!*i3e
No!-0er1)+!*i3e
8Ar$itr+.e9 )e*.e9
5e12+tio!:
commercial banks even out their foreign exchange inflows and outflows among
themselves. Finally at the 6o2rt) and the highest level is the nation%s central bank,
which acts as the lender or buyer of last resort when the nation%s total foreign
exchange earnings and exenditure are une(ual. The central then either draws down
its foreign reserves or adds to them.
1.# PARTICIPANTS
CUSTOMERS
The customers who are engaged in foreign trade articiate in foreign exchange
markets by availing of the services of banks. 1xorters re(uire converting the dollars
into ruee and imorters re(uire converting ruee into the dollars as they have to ay
in dollars for the goods : services they have imorted. "imilar tyes of services may
be re(uired for setting any international obligation i.e., ayment of technical know-
how fees or reayment of foreign debt, etc.
COMMERCIA( ,ANKS
They are most active layers in the forex market. Commercial banks dealing with
international transactions offer services for conversation of one currency into another.
These banks are secialised in international trade and other transactions. They have
wide network of branches. Jenerally, commercial banks act as intermediary between
exorter and imorter who are situated in different countries. This action of bank
may trigger a sate of buying and selling of foreign exchange in the market.
Commercial banks have following o$@e1ti/e3 for being active in the foreign
exchange marketG
They render better service by offering cometitive rates to their customers
engaged in international trade.
They are in a better osition to manage risks arising out of exchange rate
fluctuations.
Foreign exchange business is a rofitable activity and thus such banks are in a
osition to generate more rofits for themselves.
They can manage their integrated treasury in a more efficient manner.
CENTRA( ,ANKS
1+
'n most of the countries central banks have been charged with the resonsibility of
maintaining the external value of the domestic currency. 'f the country is following a
fixed exchange rate system, the central bank has to take necessary stes to maintain
the arity, i.e., the rate so fixed. 1ven under floating exchange rate system, the
central bank has to ensure orderliness in the movement of exchange rates. Jenerally
this is achieved by the intervention of the bank. "ometimes this becomes a concerted
effort of central banks of more than one country.
7art from this central banks deal in the foreign exchange market for the following
urosesG
Ex1)+!.e r+te 0+!+.e0e!t:
Though sometimes this is achieved through intervention, yet where a central
bank is re(uired to maintain external rate of domestic currency at a level or in a band
so fixed, they deal in the market to achieve the desired ob.ective
Re3er/e 0+!+.e0e!t:
Central bank of the country is mainly concerned with the investment of the
countries foreign exchange reserve in a stable roortion in range of currencies and
in a range of assets in each currency. These roortions are, inter alias, influenced by
the structure of official external assets:liabilities. For this bank has involved certain
amount of switching between currencies.
Central banks are conservative in their aroach and they do not deal in foreign
exchange markets for making rofits. Kowever, there have been some aggressive
central banks but market has unished them very badly for their adventurism. 'n the
recent ast =alaysian Central bank, #ank ;egara lost billions of dollars in foreign
exchange transactions.
I!ter/e!tio! $< Ce!tr+ ,+!-
't is truly said that foreign exchange is as good as any other commodity. 'f a
country is following floating rate system and there are no controls on caital
transfers, then the exchange rate will be influenced by the economic law of demand
and suly. 'f suly of foreign exchange is more than demand during a articular
eriod then the foreign exchange will become cheaer. Fn the contrary, if the suly
is less than the demand during the articular eriod then the foreign exchange will
11
become costlier. The exorters of goods and services mainly suly foreign exchange
to the market. 'f there are no control over foreign investors are also suliers of
foreign exchange.
9uring a articular eriod if demand for foreign exchange increases than the suly,
it will raise the rice of foreign exchange, in terms of domestic currency, to an
unrealistic level. This will no doubt make the imorts costlier and thus rotect the
domestic industry but this also gives boost to the exorts. Kowever, in the short run it
can disturb the e(uilibrium and orderliness of the foreign exchange markets. T)e
1e!tr+ $+!- >i t)e! 3te5 6or>+r* to 3255< 6orei.! ex1)+!.e to 0eet t)e
*e0+!* 6or t)e 3+0e. This will smoothen the market. The central bank achieves this
by selling the foreign exchange and buying or absorbing domestic currency. Thus
demand for domestic currency which, couled with suly of foreign exchange, will
maintain the rice of foreign currency at desired level. This is called Ai!ter/e!tio!
$< 1e!tr+ $+!-B.
'f a country, as a matter of olicy, follows fixed exchange rate system, the central
bank is re(uired to maintain exchange rate generally within a well-defined narrow
band. -henever the value of the domestic currency aroaches uer or lower limit
of such a band, the central bank intervenes to counteract the forces of demand and
suly through intervention.
'n 'ndia, the central bank of the country, the <eserve #ank of 'ndia, has been
en.oined uon to maintain the external value of ruee. !ntil =arch 1, 1))4, under
section 6+ of the <eserve #ank of 'ndia act, 1)46, <eserve #ank was obliged to buy
from and sell to authorised ersons i.e., 79%s foreign exchange. Kowever, since
=arch 1, 1))4, under =odified (i$er+i3e* Ex1)+!.e R+te M+!+.e0e!t S<3te0
8Mo*i6ie* (ERMS:9 <eserve #ank is not obliged to sell foreign exchange. 7lso, it
will urchase foreign exchange at market rates. 7gain, with a view to maintain
external value of ruee, <eserve #ank has given the right to intervene in the foreign
exchange markets.
EXCHAN%E ,ROKERS
Forex brokers lay a very imortant role in the foreign exchange markets. Kowever
the extent to which services of forex brokers are utilized deends on the tradition and
ractice revailing at a articular forex market centre. 'n 'ndia dealing is done in
10
interbank market through forex brokers. 'n 'ndia as er F197' guidelines the 79%s
are free to deal directly among themselves without going through brokers. The forex
brokers are not allowed to deal on their own account all over the world and also in
'ndia.
In India brokers commission is fixed by FEDAI.
SPECU(ATORS
"eculators lay a very active role in the foreign exchange markets. 'n fact ma.or
chunk of the foreign exchange dealings in forex markets in on account of seculators
and seculative activities.The seculators are the ma.or layers in the forex markets.
#anks dealing are the ma.or seculators in the forex markets with a view to
make rofit on account of favourable movement in exchange rate, take osition i.e., if
they feel the rate of articular currency is likely to go u in short term. They buy that
currency and sell it as soon as they are able to make a (uick rofit.
Cororations articularly =ultinational Cororations and Transnational
Cororations having business oerations beyond their national frontiers and on
account of their cash flows. #eing large and in multi-currencies get into foreign
exchange exosures. -ith a view to take advantage of foreign rate movement in their
favour they either delay covering exosures or does not cover until cash flow
materialize.
%o/er!0e!t3 narrow or invest in foreign securities and delay coverage of the
exosure on account of such deals.
I!*i/i*2+ like share dealings also undertake the activity of buying and selling of
foreign exchange for booking short-term rofits. They also buy foreign currency
stocks, bonds and other assets without covering the foreign exchange exosure risk.
This also results in seculations.
Cor5or+te e!titie3 take ositions in commodities whose rices are exressed in
foreign currency. This also adds to seculative activity.
T)e 35e12+tor3 or tr+*er3 in the forex market cause significant swings in foreign
exchange rates. These swings, articular sudden swings, do not do any good either to
the national or international trade and can be detrimental not only to national
economy but global business also. Kowever, to be far to the seculators, they rovide
the much need li(uidity and deth to foreign exchange markets. This is necessary to
14
kee bid-offer which sreads to the minimum. "imilarly, li(uidity also hels in
executing large or uni(ue orders without causing any riles in the foreign exchange
markets. Fne of the views held is that seculative activity rovides much needed
efficiency to foreign exchange markets. Therefore we can say that 35e12+tio! i3
!e1e33+r< e/i i! 6orex 0+r-et3.
1.C FOREX MARKETS 4DS OTHER MARKETS
FF<1E =7<?1T" FTK1< =7<?1T"
The Forex market is oen 24 hours a day,
5.5 days a week. #ecause of the
decentralised clearing of trades and
overla of ma.or markets in 7sia, >ondon
and the !nited "tates, the market remains
oen and li(uid throughout the day and
overnight.
Limied f!oor radin" hours dictated by
the time zone of the trading location,
significantly restricting the number of
hours a market is oen and when it can be
accessed.
#os !i$uid marke in the world eclising
all others in comarison. =ost
transactions must continue, since currency
exchange is a re(uired mechanism needed
to facilitate world commerce.
%hrea of !i$uidiy dryin" u& after market
hours or because many market articiants
decide to stay on the sidelines or move to
more oular markets.
'ommission(Free Traders are "ou"ed wih fees, such as
commissions, clearing fees, exchange fees
and government fees.
16
Fne consisen mar"in rae 06 hours a
day allows Forex traders to leverage their
caital more efficiently with as high as
1++-to-1 leverage.
Lar"e ca&ia! re$uiremens, high margin
rates, restrictions on shorting, very little
autonomy.
)o *esricions "hort selling and sto order resricions.
Forei.! ex1)+!.e re3er/e3 ,also called Forex re3er/e3 or FX re3er/e3/ in a strict
sense are only the foreign currency deosits and bonds held by central banks and
monetary authorities. Kowever, the term in oular usage commonly includes foreign
exchange and gold, "9<s and '=F reserve ositions. These are assets of the central
bank held in different reserve currencies, mostly the !" dollar, and to a lesser extent
the euro, the !? ound, and the Aaanese yen, and used to back its liabilities, e.g. the
local currency issued, and the various bank reserves deosited with the central bank,
by the government or financial institutions.
The following is a list of the to 0+ largest countries by foreign exchange reserves
R+!- Co2!tr<
Forei.! ex1)+!.e re3er/e3
8Miio!3 o6 US$:
Fi.2re3 +3 o6
1 $eole&s <eublic of China
L1M
4,*0I,++6 "e 0+14
L1M
0 Aaan 1,0*),46I =ar 0+16
L0M
4 "audi 7rabia *44,II8 =ar 0+16
L4M
6 "witzerland C6C,)I4 =ar 0+16
L6M
C <ussia 68I,141 =ar 0+16
LCM
I Taiwan 606,06) =ar 0+16
LIM
* #razil 4I4,)16 =ar 0+16
L*M
8 <eublic of ?orea 4C6,461 =ar 0+16
L8M
- Kong ?ong 41I,8I* =ar 0+16
L)M
) 'ndia 416,)0C =ay 0+16
L1+M
1+ "ingaore 0*0,)+I =ar 0+16
L11M
11 Jermany 0+*,II8 =ar 0+16
L10M
10 7lgeria 1)0,C++ 9ec 0+14
L14M
1C
R+!- Co2!tr<
Forei.! ex1)+!.e re3er/e3
8Miio!3 o6 US$:
Fi.2re3 +3 o6
14 =exico 18C,6I* =ar 0+16
L16M
16 Thailand 1I*,66* =ar 0+16
L1CM
1C France 1C6,68+ =ar 0+16
L1IM
1I 'taly 1C0,I8) =ar 0+16
L1*M
1* !nited "tates 164,C+I =ay 0+16
L18M
18 !nited ?ingdom 161,1+4 =ar 0+16
L1)M
1) =alaysia 14+,186 =ar 0+16
L0+M
0+ Turkey 10I,+C1 =ar 0+16
L01M
1.E M+r-et SiFe +!* i=2i*it<
The foreign exchange market is the most li(uid financial market in the world. Traders
include large banks, central banks, institutional investors, currency seculators,
cororations, governments, other financial institutions, and retail investors. The
average daily turnover in the global foreign exchange and related markets is
continuously growing. 7ccording to the 0+16 Triennial Central #ank "urvey,
coordinated by the #ank for 'nternational "ettlements, average daily turnover was
!"56.40 trillion in 7ril 0+16 ,vs. 50.C trillion in 0++8/. Ff this56.40 trillion, 51.1I
trillion was sot foreign exchange transactions and 50.1I trillion was traded in
outright forwards, FE swas and other currency derivatives. Trading in the !?
accounted for 4I.*D of the total, making !? by far the most imortant global center
for foreign exchange trading. 'n second and third laces, resectively, trading in the
!"7 accounted for 1*.)D, and Aaan accounted for I.0D.
Turnover of exchange-traded foreign exchange futures and otions have
grown raidly in recent years, reaching 50II billion in 0+16 ,double the turnover
recorded in 7ril 0+11/.1xchange-traded currency derivatives reresent 6D of FTC
foreign exchange turnover. The use of foreign exchange derivatives is growing in
many emerging economies. Countries such as ?orea, "outh 7frica, and 'ndia have
established currency futures exchanges, desite having some controls on the caital
account. Foreign exchange trading increased by 0+D between 0+1+ and 0+16 and has
more than doubled since 0++*. The increase in turnover is due to a number of factorsG
1I
the growing imortance of foreign exchange as an asset class, the increased trading
activity of high fre(uency
Traders, and the emergence of retail investors as an imortant market
segment. The growth of electronic execution methods and the diverse selection of
execution venues have lowered transaction costs, increased market li(uidity, and
attracted greater articiation from many customer tyes. 'n articular, electronic
trading via online ortals has made it easier for retail traders to trade in the foreign
exchange market. #y 0+1C, retail trading is estimated to account for u to 1+D of
sot FE turnover, or 51C+ billion er day.
To5 1G 12rre!1< tr+*er3
H o6 o/er+ /o20e9 M+< 2G1'
R+!- N+0e M+r-et 3)+re
1 Citi 1I.+6D
0 9eutsche #ank 1C.I*D
4 #arclays 'nvestment #ank 1+.)1D
6 !#" 7J 1+.88D
C K"#C *.10D
I A$=organ C.CCD
* #ank of 7merica =errill >ynch 6.48D
8 <oyal #ank of "cotland 4.0CD
) #;$ $aribas 4.1+D
1+ Joldman "achs 0.C4D
R+!- C2rre!1<
ISO '21C 1o*e
8S<0$o:
H *+i< 3)+re
8A5ri 2G1':
1 !nited "tates dollar !"9 ,5/ 8*.+D
0 1uro 1!< ,N/ 44.6D
4 Aaanese yen A$B ,O/ 04.+D
6 $ound sterling J#$ ,P/ 11.8D
C 7ustralian dollar 7!9 ,5/ 8.ID
I "wiss franc CKF ,Fr/ C.0D
1*
* Canadian dollar C79 ,5/ 6.ID
8 =exican eso =E; ,5/ 0.CD
) Chinese Buan C;B ,O/ 0.0D
1+ ;ew Qealand dollar ;Q9 ,5/ 0.+D
11 "wedish krona "1? ,kr/ 1.8D
10 <ussian ruble <!# ,) 1.ID
14 Kong ?ong dollar K?9 ,5/ 1.6D
16 "ingaore dollar "J9 ,5/ 1.6D
1C Turkish lira T<B , / 1.4D
Fther 10.0D
Tot+ 2GGH

1.9 COMPAN& PROFI(E
PROFI(E OF THE ,ANK
The Ho23i!. De/eo50e!t Fi!+!1e Cor5or+tio! (i0ite* 8HDFC: was amongst the first to receive an Rin
rincile& aroval from the <eserve #ank of 'ndia ,<#'/ to set u a bank in the rivate "ector, as art of the
<#'&s liberalization of the 'ndian #anking 'ndustry in 1))6. The bank was incororated in 7ugust 1))6 in the
name of &K9FC #ank >imited&, with its registered office in =umbai, 'ndia.K9FC #ank commenced oerations
as a "cheduled Commercial #ank in Aanuary 1))C.
K9FC is 'ndia&s remier housing finance comany and en.oys an imeccable track record in 'ndia as
well as in international markets. "ince its incetion in 1)**, the Cororation has maintained a consistent and
healthy growth in its oerations to remain the market leader in mortgages. 'ts outstanding loan ortfolio covers
well over a million dwelling units. K9FC has develoed significant exertise in retail mortgage loans to
different market segments and also has a large cororate client base for its housing related credit facilities.
-ith its exerience in the financial markets, a strong market reutation, large shareholder base and uni(ue
Consumer franchise, K9FC was ideally ositioned to romote a bank in the 'ndian environment.

7s on 41st 9ecember, 0+14 the authorized share caital of the #ank is <s. IC+ crore. The aid-u
Caital as on said date is <s. CCC, 04, IC,I6+:- ,CC, C0, 4I,CI6 e(uity shares of <s. 1+:- each/. The K9FC Jrou holds
18
04.8* D of the #ank&s e(uity and about 1I.)6 D of the e(uity is held by the 79" 9eository,in resect of the
bank&s 7merican 9eository "hares ,79"/ 'ssue/.0*.6I D of the e(uity is held by Foreign 'nstitutional 'nvestors
,F''s/ and the #ank has about 6,C8,I84 shareholders.
The shares are listed on the #ombay "tock 1xchange >imited and The ;ational "tock
1xchange of 'ndia >imited. The #ank&s 7merican 9eository "hares ,79"/ are listed on the ;ew Bork "tock
1xchange ,;B"1/ under the symbol &K9#& and the #ank&s Jlobal 9eository <eceits ,J9<s/ are
listed on >uxembourg "tock 1xchange.
K9FC #ank offers a wide range of commercial and transactional banking services and treasury roducts to
-holesale and retail customers. The bank has three key business segments
;)oe3+e ,+!-i!. Ser/i1e3
The #ank&s target market ranges from large, blue-chi manufacturing comanies in the 'ndian cororate to
small H mid-sized cororates and agri-based businesses. For these customers, the #ank rovides a wide
range of commercial and transactional banking services, including working caital finance, trade services,
transactional services, cash management, etc. The bank is also a leading rovider of structured
solutions, which combine cash management services with vendor and distributor finance for
facilitating suerior suly chain management for its cororate customers. #ased on its suerior roduct
delivery : service levels and strong customer orientation, the #ank has made significant inroads into the
banking consortia of a number of leading 'ndian cororates including multinationals, comanies from the
domestic business houses and rime ublic sector comanies. 't is recognized as a leading rovider of cash
management and transactional banking solutions to cororate customers, mutual funds, stock exchange members
and banks.
Ret+i ,+!-i!. Ser/i1e3
The ob.ective of the <etail #ank is to rovide its target market customers a full range of financial roducts
and banking services, giving the customer a one-sto window for all his:her banking re(uirements. The
1)
roducts are backed by world-class service and delivered to customers through the growing branch network,
as well as through alternative delivery channels like 7T=s, $hone #anking, ;et
#anking and =obile #anking.
The K9FC #ank $referred rogram for high net worth individuals, the K9FC #ank $lus and the 'nvestment
7dvisory "ervices rograms have been designed keeing in mind needs of customers who seek distinct
financial solutions, information and advice on various investment avenues. The #ank also has a wide
array of retail loan roducts including 7uto >oans, >oans against marketable securities, $ersonal >oans and
>oans for Two-wheelers. 't is also a leading rovider of 9eository $articiant ,9$/ services for retail
customers, roviding customers the facility to hold their investments in electronic form. K9FC #ank
was the first bank in 'ndia to launch an 'nternational 9ebit Card in association with S'"7
,S'"7 1lectron/ and issues the =asterCard =aestro debit card as well. The #ank launched its
credit card business in late 0++1. #y =arch 0++), the bank had a total card base ,debit and credit cards/ of
over 14 million. The #ank is also one of the leading layers in the @merchant ac(uiringT business with
over *+,+++ $oint-of-sale ,$F"/ terminals for debit : credit cards accetance at merchant establishments.
The #ank is well ositioned as a leader in various net based #0C oortunities including a wide range
of internet banking services for Fixed 9eosits, >oans, #ill $ayments, etc.
Tre+32r<
-ithin this business, the bank has three main roduct areas - Foreign 1xchange and 9erivatives, >ocal Currency
=oney =arket H 9ebt "ecurities, and 1(uities. -ith the liberalization of the financial markets in 'ndia,
cororates need more sohisticated risk management information, advice and roduct structures. These
and fine ricing on various treasury roducts are rovided through the bank&s Treasury team. To comly
with statutory reserve re(uirements, the bank is re(uired to hold 0CD of its deosits in government securities.
The Treasury business is resonsible for managing the returns and market risk on this investment ortfolio
Cor5or+te %o/er!+!1e:
The bank was among the first four comanies, which sub.ected itself to a Cororate Jovernance and Salue
Creation ,JSC/ rating by the rating agency, The Credit <ating 'nformation "ervices of 'ndia >imited ,C<'"'>/.
The rating rovides an indeendent assessment of an entity&s current erformance and an exectation on its
2balanced value creation and cororate governance ractices2 in future. The bank has been assigned a
&C<'"'> JSC >evel 1& rating, which indicates that the bank&s caability with resect to wealth creation for
all its stakeholders while adoting sound cororate governance ractices is the highest.
0+
Te1)!oo.<:
K9FC #ank oerates in a highly automated environment in terms of information technology and communication
systems. 7ll the bank&s branches have online connectivity, which enables the bank to offer seedy funds transfer
facilities to its customers. =ulti-branch access is also rovided to retail customers through the branch network
and 7utomated Teller =achines ,7T=s/.
The #ank has made substantial efforts and investments in ac(uiring the best technology available
internationally, to build the infrastructure for a world class bank.
The #ank&s business is suorted by scalable and robust systems which ensure that our clients always get the
finest services we offer. The #ank has rioritized its engagement in technology and the internet as one of its
key goals and has already made significant rogress in web-enabling its core businesses. 'n each of its businesses,
the #ank has succeeded in leveraging its market osition, exertise and technology to create a cometitive
advantage and build market share.
Mi33io! +!* ,23i!e33 Str+te.<:
K9FC mission is to be 2a -orld Class 'ndian #ank2, benchmarking themselves against international standards
and best ractices in terms of roduct offerings, technology, service levels, risk management and audit H
comliance. The ob.ective is to build sound customer franchises across distinct businesses so as to be a
referred rovider of banking services for target retail and wholesale customer segments, and to achieve a
Kealthy growth in rofitability, consistent with the #ank&s risk aetite. They are committed to do this while
ensuring the highest levels of ethical standards, rofessional integrity,cororate governance.
K9FC business strategy emhasizes the followingG
'ncrease their market share in 'ndia%s exanding banking and financial services industry by following a
discilined growth strategy focusing on (uality and not on (uantity and delivering high (uality customer
service.
01
>everage our technology latform and oen scalable systems to deliver more roducts to more customers
and to control oerating costs.
=aintain our current high standards for asset (uality through discilined credit risk management.
9evelo innovative roducts and services that attract our targeted customers and address inefficiencies in
the 'ndian financial sector.
Continue to develo roducts and services that reduce our cost of funds.
Focus on high earnings growth with low volatility.
K9FC #ank is head(uartered in =umbai. The #ank at resent has an enviable network of 1,*0C branches
sread in **1 cities across 'ndia. 7ll branches are linked on an online real-time basis. Customers in over C++
locations are also serviced through Telehone #anking. The #ank&s exansion lans take into account the need
to have a resence in all ma.or industrial and commercial centres where its cororate customers are located as
well as the need to build a strong retail customer base for both deosits and loan roducts. #eing a clearing:
settlement bank to various leading stock exchanges, the #ank has branches in the centres where the ;"1:#"1
have a strong and active member base.The #ank also has 4,8)8 networked 7T=s across these cities. =oreover, K9FC #ank&s 7T=
network can be accessed by all domestic and international Sisa:=asterCard, Sisa 1lectron:=aestro, $lus:Cirrus and
7merican 1xress Credit:Charge cardholders.
AIMS:
Continuous effort to imroving the services.
1valuating individual skill through training and motivations.
Total involvement through articiant%s management activities.
Creating healthy and safe environment.
"ocial develoment.
Cre*it R+ti!.
The #ank has its deosit rograms rated by two rating agencies - Credit 7nalysis H <esearch >imited ,C7<1/
and Fitch <atings 'ndia $rivate >imited. The #ank&s Fixed 9eosit rogrammed has been rated &C7<1 777
,F9/&LTrile 7M by C7<1, which reresents instruments considered to be 2of the best (uality, carrying negligible
investment risk.2 C7<1 has also rated the bank&s Certificate of 9eosit ,C9/ rogrammed 2$< 1U2 which
00
reresents 2suerior caacity for reayment of short term romissory obligations2. Fitch <atings 'ndia $vt. >td.
,1++D subsidiary of Fitch 'nc./ has assigned the 2777 ,ind/2 rating to the #ank&s deosit rogrammed, with
the outlook on the rating as 2stable2. This rating indicates 2highest credit (uality2 where 2rotection factors are
very high2.
Cor5or+te %o/er!+!1e R+ti!.
The bank was one of the first four comanies, which sub.ected itself to a Cororate Jovernance and Salue
Creation ,JSC/ rating by the rating agency, The Credit <ating 'nformation "ervices of 'ndia >imited ,C<'"'>/.
The rating rovides an indeendent assessment of an entity&s current erformance and an exectation on its
2balanced value creation and cororate governance ractices2 in future. The bank was assigned a &C<'"'>
JSC >evel 1& rating in Aanuary 0++* which indicates that the bank&s caability with resect to wealth creation
for all its stakeholders while adoting sound cororate governance ractices is the highest.
Pro*21t3
04
Forex ,2< +!* Se
Tr+/e C+r*
Tr+/eerB3 C)e=2e
;e3ter! U!io!
1.1G SCOPE OF THE STUD&
To know what is foreign exchange and what are the various foreign exchange services.
To know how the transactions related to foreign exchange volatility carried out.
06
0C