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1. KALPATARU INSTITUTE OF TECHNOLOGY, POST GRADUATION DEPARTMENT OF MBA COURSE :Global Financial Management COURSE CODE : 22MBAFM403 TOPIC : Characteristics & functions of foreign exchange market. Presented by: Keerthi raje uras R N Fourth Semester Department of MBA

2. Characteristics of FOREX Market The characteristics of FOREX market are as follows: Electronic Market: The foreign exchange market is not functioning physically but it operates through electronic medium used by the networks of banks, foreign exchange brokers and dealers. Their primary motive is to assist the buyers and the sellers of the foreign exchange. 2) Geographical Dispersal: One of the positive features of foreign exchange market is that it is not limited to a particular geographical area but, its functions are operative all around the world with the help of principal financial centers located in London, New York, Paris, Zurich, Amsterdam, Tokyo, Hong Kong, Toronto, Frankfurt, Milan and in the other cities.

3. 3) Transfer of Purchasing Power: The prime objective of this market is to approve all such transfers in which the purchasing power of one currency is exchanged for the other currency or in which the one currency is traded for the other currency. For example, a firm from India is selling a software to a firm located in U.S for dollars and at the same time, a firm in U.S is also selling a super computer to a company located in India for Indian rupees. 4) Intermediary: The other important feature of foreign exchange market is that it is very easy to convert the currency into the other currency of any country. Thus, based on this reason, this market is considered as the intermediary between the participants of the foreign exchange namely, the buyers (or the importers) and the sellers (or the exporters).

4. 5) Volume: The other important feature of foreign exchange market is maximum volume of international capital flows, as maximum proportion (around to 95%) of total transactions is related to the transactions of buying and selling of assets from the outside countries. 6) Credit Provision: This market provides funds to its participants through the specified instruments like the bankers' acceptances and the letter of credit. These instruments are useful for providing sufficient fund to the various participants of the exchange market like the traders and the businessmen. 7) Minimizing Risks: The importers and the exporters are the regular participants of foreign exchange because they can reduce risk associated to the foreign trade. While this become possible on availing the service of hedging.

5. Functions of FOREX Markets: ▪ Transfer Function: The primary function of foreign exchange market is to convert one currency into other currency or a function of transferring the purchasing power among the two different countries. There are separate credit instruments that directly and indirectly influence the function of transferring like the telegraphic transfers, bank draft and the foreign bills. ▪ Credit Function: The other important function of foreign exchange market is the supply of funds, in denomination of both currencies, domestic as well as in foreign currency. Providing credit to the participants of the market is an important function for developing the foreign trade and for supporting the bills of exchange used for the international payments.

6. ▪ Hedging Function: The last but not the least function of foreign exchange market is hedging of risk associated to the foreign exchange rate. An individual involves in the exchange of one currency for another currency is subject to loss and gain due to increase and decrease in the exchange rates. The exchange risk can be evaded and it can minimize through a process known as hedging. Thus, for hedging the foreign exchange risks, this market enables the participants to estimate about the actual claims or liabilities with the help of forward contracts.

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