Forex market research

Our award-winning research team brings you insights and tips, direct from our seasoned traders. Divided into weekly, daily and intraday research, we cover both fundamental and technical indicators. Our Intraday commentary includes FOREX Insider and the widely read Market Updates. Follow the market with our traders as they decode the market's movements, point out emerging chart patterns and analyze key data releases' impact on the currency markets, as they happen.

FOREX Insider
Forex Insider provides you with actionable analysis of news, events and technical levels that impact currency prices - as it happens. Updates are published directly by the senior traders and members of our experienced research team, up to 20 times an hour. Take advantage of their proximity to institutional buy and sell side action, as they trade over $200 billion a month with the world's largest financial institutions. Keep in mind that the market impact of news and other events detailed in Forex Insider may already be factored into the currency price before this information reaches the public. Forex Insider is available directly within the platform, allowing you to act quickly on the information. To access Forex Insider, click the "Commentary" tab.

Strategy of the Day
Published twice a day before the Asian and New York markets open, Strategy of the Day gives you a fresh, ready-to-use trading idea for the upcoming trading session. Currency Strategist Todd Gordon explains step by step how to set up the trade and why he thinks it's a smart move, reporting back on the results and lessons learned.
Daily Technical Analysis Report
For avid chartists. Published every morning at 0800 ET, this report x-rays 12 key currency pairs for short, medium, and long term momentums as well as key support/resistance levels. Keep your eye on these "tripwires" for market action - so you can trade with the trend, as soon as it starts.
Pivot Points
Updated at the close of each business day, we provide three levels of support and resistance for 37 currency pairs. When used in conjunction with other technical indicators, and research, pivot points can provide technical traders additional confirmation for anticipated support and resistance levels.
Trading Central's Daily Technical Levels
Get the latest technical levels for six major currency pairs delivered right to your inbox twice each day, at the beginning and end of the NY trading session. Each report provides support, resistance, momentum and trend analysis, along with anticipated price action and trading strategies for the upcoming session, all in an easy to read newsletter format. Trading Central is a leading investment research provider to financial market professionals. Their technical strategies cover forex, commodities, equity, index, and fixed-income markets. Trading Central research is available free of charge to FOREX premier and FOREXPro clients.Strategy of the DayPublished twice a day before the Asian and New York markets open, Strategy of the Day gives you a fresh, ready-to-use trading idea for the upcoming trading session. Currency Strategist Todd Gordon explains step by step how to set up the trade and why he thinks it's a smart move, reporting back on the results and lessons learned.. Daily Technical Analysis ReportFor avid chartists. Published every morning at 0800 ET, this report x-rays 12 key currency pairs for short, medium, and long term momentums as well as key support/resistance levels. Keep your eye on these "tripwires" for market action - so you can trade with the trend, as soon as it starts. Pivot PointsUpdated at the close of each business day, we provide three levels of support and resistance for 37 currency pairs. When used in conjunction with other technical indicators, and research, pivot points can provide technical traders additional confirmation for anticipated support and resistance levels.Trading Central's Daily Technical Levels Get the latest technical levels for six major currency pairs delivered right to your inbox twice each day, at the beginning and end of the NY trading session. Each report provides support, resistance, momentum and trend analysis, along with anticipated price action and trading strategies for the upcoming session, all in an easy to read newsletter format. Trading Central is a leading investment research provider to financial market professionals. Their technical strategies cover forex, commodities, equity, index, and fixed-income markets. Trading Central research is available free of charge to FOREXPremeir and FOREXPro clients.

The Week Ahead
every Friday at 1500 ET, this report summarizes key market developments – both fundamental and technical - and analyzes the likely impact on the upcoming trading week. It's a quick, compact way to keep a handle on the overall currency market.
The Weekly Strategy
If you're a swing trader, check out the Weekly Strategy every Friday at 1500 ET for trading opportunities to consider in the upcoming week. We set up the trade, explain the logic behind it, and then report back on how it worked in the actual market. Get your trading tips from a team with real skin-in-the-game - and benefit from our experience.

Economic Calendar
Your shorthand guide to key economic releases for the week ahead. Review how currency markets reacted previously to these events and what they're forecasted to act next.

FOREX-Dollar hits 4-mth low vs yen as investors cut risk

The dollar fell to a four-month low against the yen on Tuesday as investors fled risky positions after U.S. lawmakers refused to pass a $700 billion bank bailout plan, sparking the biggest Wall Street stock sell-off since 1987. But the dollar quickly recovered losses against the yen, with some Japanese institutional investors buying dollars as they prepared to close their books for the April-September first half of the financial year. The U.S. House of Representatives on Monday unexpectedly rejected a plan to buy toxic assets from struggling banks in an effort to revitalise strained lending markets. The move hit the dollar by dashing hopes for a comprehensive solution to the credit crisis that has claimed a variety of major financial institutions such as Lehman Brothers this month, stirring worries of a deeper economic downturn. "There are many dollar-selling factors such as a slowing economy, possible Fed rate cuts and the outlook for worsening fiscal conditions for the U.S. government as it is expected to spend money to rescue banks," said Osamu Takashima, chief currency analyst at Bank of Tokyo-Mitsubishi UFJ. But the euro and sterling have also suffered as banks in Europe succumb to the widening crisis fallout, prompting investors to rush for currencies seen as a safe-haven during the turmoil, such as the yen and Swiss franc. "The simple way to understand all the developments is that the yen is an alternative choice as safe-haven, with the euro and dollar shunned due to the credit crisis," said a senior trader at a Japanese trust bank. The U.S. lawmakers vote against the bailout package caused a panic among investors, with the Dow Jones industrial average <.DJI> suffering its biggest one-day point drop ever. Asian markets tumbled as well, with Japan's Nikkei average falling nearly 5 percent. The dollar struck a four-month low of 103.50 yen on trading platform EBS before recovering to 104.11, little changed from late U.S. trade on Monday. Despite the dollar's recovery, traders expect the U.S. currency to weaken against the yen as risk aversion is expected to spread after trade moves to Europe and the United States. The dollar is also vulnerable because more investors are betting the Federal Reserve will cut interest rates from the current 2.0 percent in an effort to limit the economic fallout from the worst financial crisis since the Great Depression. The dollar fell 4.3 percent against the yen during September, when problems in the U.S. financial sector went from bad to worse. Earlier this month, the U.S. government took control of troubled mortgage finance giants Fannie Mae and Freddie Mac and bailed out insurer AIG, while Lehman Brothers filed bankruptcy. The euro fell 0.6 percent to $1.4352. The single currency is now 2.2 percent below where it ended August. The euro was down 0.6 percent at 149.50 yen and fell back near a two-year low hit earlier in month. On Monday, the credit crunch claimed several new victims -- Wachovia Corp as well as many European banks -- showing the financial crisis is spreading from the United States to Europe. At least five banks in Britain, Belgium, Russia, Iceland and the United States were rescued by authorities over the weekend, prompting mammoth injections of cash into the global banking system by central banks to relieve frozen money markets. But interbank rates stayed painfully high, showing the efforts of global central banks have not succeeded in easing credit tightness. "Funds are not reaching financial firms that need money as a sense of panic continues to dominate markets," a trader at a big Japanese bank. "It is reaching a point that financial markets, including the forex market, are not functioning."

Forex News and Events

The Euro and Sterling retreated early Monday on growing concerns about the financial system while the Dollar received a boost on relief US lawmakers were set to vote on a $700bio bailout fund to alleviate the credit crisis. The Euro fell against the Dollar as Belgian-Dutch financial group Fortis was rescued in a state buyout after European Central Bank President Jean-Claude Trichet held emergency talks with Dutch, Belgian and Luxembourg officials. Sterling was hit as authorities prepared to nationalize troubled mortgage lender Bradford & Bingley and were discussing a sale of its savings deposits and branches, people familiar with the matter said. Analyst said the two cases show that the financial crisis is not confined to the United States but is spreading globally. As the US moves ahead with the bailout plan, market focus is shifting to Europe and other regions, weighing on these currencies. Early Monday, EurUsd fell as low as 1.4483 while GbpUsd shed to 1.8259 low. UsdJpy rose as high as 106.09 and UsdChf posted 1.0988 high. Last week EurUsd was up 0.99% at 1.4609, GbpUsd up 0.62% to 1.8429. UsdJpy dropped 1.34% to 106.01 last week while UsdChf lost 1.33% to 1.0905. US lawmakers geared up for a possible vote on Monday on creating the $700bio government fund. Congressional leaders from both parties said they had a tentative agreement early on Sunday, but questions abound as to whether the US financial rescue plan, which would use taxpayer funds to buy up toxic mortgage debt, would restore confidence to shaky markets and head of a deeper downturn. Wachovia Corp is in talks with rivals to be taken over, sources familiar with the situation said, after the US bank's shares tumbled 27% on Friday due to fears about its hefty mortgage portfolio. Market players were also wary of economic data including monthly US payrolls due on Friday, with weak figures likely to put a cap on the Dollar.

EurUsd On the current upside, only a return over 1.5000 and 1.5500 will release actual pressure and may put key initial resistance 1.6000 into focus. Still a break up there would open the way to Trendline resistance 1.6200. But renewed weakness below 1.4250 will put the focus on strong support 1.3666 December 2004 high and 1.3056 support (retracement of 0.8231 – 1.6039 advance). GbpUsd On the upside, strong resistance holds 1.8795 21st August high. Former support 1.9363 holds also strong resistance. Key level holds 2.0100 resistance. Renewed weakness below 1.7447 may find support on 1.7422 (50% retracement of 1.3682 – 2.1161 advance). Strong support holds 1.7251 3rd April low. UsdJpy Last two-week strong volatility posted 104.20 to 106.20 consolidation range before recovery over 108 and initial resistance. Further advance will put 110.67 15th August high. Renewed pressure below 105.88 initial support may open the way toward 105 pivot (38.2% retracement of 95.75 – 110.67 advance), as well as 103.54 latest weeks low and 100 pivot point. UsdChf Market rose as high as 1.1418 three-weeks ago and strongly reversed 2-month uptrend last week. High volatile Friday session posted 1.1280 high initial resistance and 1.1007 low. On the downside, only weakness below 1.0734 former resistance would undermine the current trend and open the way down to 1.0500 and 1.0375. This move could also test the 1.0013 15th July low in front of 0.9637 17th March low. Initial resistance holds 1.1280 Friday high ahead of 1.1418 11th September trend high.

Forex growthing

The marketThe currency trading (FOREX) market is the biggest and the fastest growing market on earth. Its daily turnover is more than 2.5 trillion dollars, which is 100 times greater than the NASDAQ daily turnover. Markets are places to trade goods. The same goes with FOREX. The Forex goods (or merchandise) are the currencies of various countries. You buy Euro, paying with US dollars, or you sell Japanese Yens for Canadian dollars. That's all.How does one profit in Forex?Very simple and obvious: buy cheap and sell for more! The profit is generated from the fluctuations (changes) in the currency exchange market.The nice thing about the FOREX market, is that regular daily fluctuations, say - around 1%, are multiplied by 100! (in general, offers trading ratios from 1:50 to 1:200). If, for example, the exchange rate of "your" pair of currencies increased by 0.6% in the last 4 hours, your profit will be 60% on your investment! Such can happen in one business day, or in a few hours, even minutes.Moreover, you cannot lose more than your "margin"! You may profit unlimited amounts, but you never lose more than what you initially risked and invested.You can implement your choice (the pair of currencies, the volume amount) under any direction to which the market is moving, and yet make profit. It does not matter whether the exchange rate is going up or down: you can always decide to buy Euro and sell dollar, or vice versa - buy dollar and sell Euro. You don't have to physically possess certain currencies in order to perform "buy" or "sell" with them.How do I start deposit your first trading "margin" amount (credit cards are welcome, only by Easy-Forex™). It can't be simpler or easier than that. Need help? We'll provide you with 1-on-1 training and service, as much as necessary offers real people service, live, in your own language).How do I trade Forex?You select the pair of currencies with which you wish to make a Forex deal. You determine the volume (the amount of the deal). You deposit the "margin" (collateral needed to facilitate the deal. Usually - only a very small portion of the whole deal, say: 1% or 1:100).Before you finally activate the deal, you can still "freeze" it for a few seconds. That enables you to either change the terms, or accept it as is, or altogether regret the whole idea. When your Forex deal is running (you hold an "open position"), you can monitor its status and check scenarios online, whenever you wish. You may change some terms in the deal, or close it (and cash the profit, if any, or minimize the loss, if any). Moreover, lets you determine a "take-profit" rate, with which the deal will close automatically for you, when and if such rate occurs in the market. Meaning: you do not have to stay near your computer when you hold open positions.Want to know more? Want to get on-line training? (simple, quick, no obligation), we'll be glad to guide you, every step of the way.Forex trading involves substantial risk of loss, and may not be suitable for everyone.

Forex reserves of 8 Asian countries

Foreign exchange reserves of eight Asian countries have depleted by a record $36 billion in August alone, as foreign investors pulled out money and central banks were seen using the reserves to prop up falling local currencies.
Though the reserves of these Asian countries have dropped in the last four months, economists say a repeat of currency crisis that hit South East Asian countries a decade back is unlikely because of improved external reserves.
"A full-blown crisis that would overwhelm currency intervention, resulting in central banks being forced to jack up interest rates to regain control of the currency, is unlikely given Asia's much-improved external position," wrote Citigroup Global markets analyst Moh Siong Sim.
The eight Asian countries, including India, South Korea, Taiwan, Indonesia, Malaysia, Singapore, the Philippines and Thailand but not China, have seen their reserves dip by $36 billion in August 2008 alone. Three countries -- South Korea, the Philippines and Thailand -- registered a sharp decline of $32.1 billion in the three months ended June 2008, according to the latest data available from a Citigroup research report and the Reserve Bank of India.
The decline in foreign exchange reserves is mainly because of foreign investors taking money from local stock markets and central banks intervening by selling dollars in the market to prevent local currency depreciation.
In India, the foreign currency reserves dipped by nearly $10 billion to reach $289.46 billion in August, as the RBI was seen propping up the Indian rupee that fell by Rs 1.3 to a dollar in August. Also, foreign investors have taken more than $8 billion (net outflow) from the Indian markets in the current calendar year.
"Intervention by central banks may be effective and it is a reasonable position to take," said Subir Gokarn, chief economist with Standard & Poor's, a rating and advisory firm. "The movement of currencies has swung to two extremes and far away from fundamentals because of two distortions -- oil price increase and current financial crisis," he added.
Though depreciation of local currencies accompanied by depletion of foreign exchange reserves is similar to what happened in the crisis that hit the South East Asian countries in 1997, the crucial difference now is that countries have aggressively built reserves and have reduced short-term external debt.
"Now the root problems are external and any impact on Asian countries is more in the nature of ripple effects," said Sanjaya Parth, senior resident representative of the International Monetary Fund (IMF) in India. "It is important to note in this context that interventions cannot have a lasting effect on the exchange rate," he said on the central banks selling US dollars when local currencies are depreciating.
He said the earlier crisis were due to risky investments financed by foreign capital and domestic credit expansion with a weak domestic financial institutions that could not handle currency fluctuation.
The eight Asian economies have adhered to Guidotti-Greenspan rule �named after former Argentina official and former US Federal Reserve governor. The rule says that countries should have foreign exchange reserves enough to recover all their foreign debt coming due within 12 months.
Based on this rule, India would have a surplus reserve of $180 billion after accounting for the current account deficit (exports less imports) and short-term obligations.
"In the long-term view, Asia gives the best returns," said Gokarn, adding that this would bring capital back into the Asian economies.
However, a recent report by the Asian Development Bank(ADB) said that outlook for the region remained tied to the fortunes of developed countries. "Uncoupling is a myth," said Ifzal Ali, chief economist of ADB in a press statement issued earlier this month. "Our study shows that the region still depends on industrial countries to fuel its growth. If the global slowdown extends beyond 2009, the repercussions for the region could be severe.

Understanding Forex Quotes

A foreign exchange quote may seem a bit confusing at first. However, it's really quite simple if you remember two things:

1) The first currency listed is the base currency and
2) the value of the base currency is always 1.

The US dollar is the centerpiece of the Forex market and is normally considered the 'base' currency for quotes. In the "Majors", this includes USD/JPY, USD/CHF and USD/CAD. For these currencies and many others, quotes are expressed as a unit of $1 USD per the second currency quoted in the pair. For example, a quote of USD/JPY 120.01 means that one U.S. dollar is equal to 120.01 Japanese yen.

When the U.S. dollar is the base unit and a currency quote goes up, it means the U.S. dollar has appreciated in value and the other currency has weakened. If the USD/JPY quote we previously mentioned increases to 123.01, the dollar is stronger because it will now buy more yen than before. The three exceptions to this rule are the British pound (GBP), the Australian dollar (AUD) and the Euro (EUR). In these cases, you might see a quote such as GBP/USD 1.4366, meaning that one British pound equals 1.4366 U.S. dollars. In these three currency pairs, where the U.S. dollar is not the base rate, a rising quote means a weakening dollar, as it now takes more U.S. dollars to equal one pound, euro or Australian dollar.
In other words, if a currency quote goes higher, that increases the value of the base currency. A lower quote means the base currency is weakening.

Currency pairs that do not involve the U.S. dollar are called cross currencies, but the premise is the same. For example, a quote of EUR/JPY 127.95 signifies that one Euro is equal to 127.95 Japanese yen.

Spreads not Commissions
When trading foreign exchange, you are always quoted a 2-sided dealing price where you can buy or sell the trade currency. The difference between the buy and sell price is the spread.

BID and ASK Prices
When trading forex you will often see a two-sided quote, consisting of a 'bid' and 'ask'. The 'bid' is the price at which you can sell the base currency (at the same time buying the counter currency). The 'ask' is the price at which you can buy the base currency (at the same time selling the counter currency).

Factors affecting the market

Currency prices are affected by a variety of economic and political conditions, most importantly interest rates, inflation and political stability. Governments sometimes participate in the Forex market to influence the value of their currencies, either by flooding the market with their domestic currency in an attempt to lower the price, or conversely buying in order to raise the price. This is known as Central Bank intervention. Any of these factors, as well as large market orders, can cause volatility in currency prices. However, the size and volume of the Forex market makes it impossible for any one entity to "drive" the market for any length of time.

Fundamental vs. Technical Analysis
Currency traders make decisions using both technical factors and economic fundamentals. Technical traders use charts, trend lines, support and resistance levels, and numerous patterns and mathematical analysis to identify trading opportunities. Fundamentalists predict price movements by interpreting a wide variety of economic information, including news, government-issued indicators and reports, and even rumor.

The most dramatic price movements however, occur when unexpected events happen. The event can range from a Central Bank raising domestic interest rates to the outcome of a political election or even an act of war. Nonetheless, more often it is the expectations surrounding an event that drives the market rather than the event itself.

The forex market is one of the most popular markets for speculation due to its enormous size, liquidity, and tendency for currencies to move in strong trends. An enticing aspect of trading currencies is the high degree of leverage available. Forex.ca allows positions to be leveraged up to 100:1. Without proper risk management, this high degree of leverage can lead to enormous swings between profit and loss. Knowing that even seasoned traders suffer losses, speculation in the forex market should only be conducted with risk capital funds that if lost will not significantly affect one's personal financial well being.

Rollover

What happens to my open positions at the end of the trading day?Unless specific settlement instructions are provided, FOREX.ca will automatically roll forward all open positions to the next day's value date at the end of each business day, 5:00 pm EST. All rolls will be done at competitive rollover rates, and depending on the currency pairs involved, trades will be executed where the trader will either earn or pay interest, depending on the interest rate differential between the two currencies. If you do not want to earn or pay interest on your positions, simply make sure it is closed at 5pm EST, the established end of the market day.

Learn to trade forex

At Forex.ca, we are dedicated in providing our traders the best tools in the marketplace to succeed. All traders require an edge! And Forex.ca's platforms, tools and resources can be your edge. We don't succeed as a company if you don't succeed. We want you to be successful and trade for profits for the long run.

As with anything else new and unfamiliar, the Forex market can seem complex and daunting to novice investors. But, like other financial markets, Forex is traded with recognizable patterns and clearly-defined technical applications, all of which can be learned.To learn to trade Forex, investors should select a well-developed and comprehensive program that, at minimum, explains how to:

Understand the logic behind Forex trading
Recognize and capitalize on market trends
Minimize risk and protect open positions
Build a consistent and valuable portfolio
React to major economic events impacting global currencies
Learn To Trade Forex (Valued at $99.00)

Learn to Trade Forex is an online training program designed to introduce investors to the global Foreign Exchange (Forex) market. The program was developed by successful senior traders and market analysts.With Learn to Trade Forex, you can study at your own pace. Seven comprehensive lessons cover all of the essential information you need to trade the Forex market - from understanding currency quotes to calculating P&L, trading on margin, the basics of fundamental and technical analysis, and more.Along with the program, you'll receive a FOREX.ca demo trading account with $25,000 in virtual funds so you can apply lessons learned in a real-life environment on a sophisticated trading platform.For more information on Learn to Trade Forex.At Forex.ca, we are dedicated in providing our traders the best tools in the marketplace to succeed. All traders require an edge! And Forex.ca's platforms, tools and resources can be your edge. We don't succeed as a company if you don't succeed. We want you to be successful and trade for profits for the long run.

2008 Forex Market Predictions

2008 has opened with several bangs: unexpected rate cuts, a volatile stock market, recession concerns, and a Presidential race that's truly up for grabs. What does it all mean for forex traders? Straight-shooting, unfiltered, and direct from the FOREX.com trading desk, we wanted to share our top 10 market predictions for 2008 with you. These predictions shouldn't be a substitute for your own research -- but we do hope they'll give you informed food for thought about your forex strategy this year.
In 2008, the Yen will be king. The year opens with an unwinding of the Japanese Yen Carry Trade due to broad-based risk aversion. Global investors have been borrowing Yen cheaply for years to invest in global markets, which has only added fuel to the speculative fire. We predict spiraling high-risk markets (equities and commodities) force investors to close their positions and repurchase Yen in 2008, pushing the currency higher across the board. By mid-year, we predict it will take only 140 JPY to purchase a Euro, nearly 20% off the peak levels. Consequently, the rise of the Yen versus the U.S. Greenback may set the currency pair back to its 2005 lows at 101.70.
The US Federal Reserve may continue to cut interest rates aggressively during the first half of 2008 in reaction to the credit crisis, housing pressure and political pressure. We see US Fed Funds trading at 3%, and then reversing direction during the second half of 2008 as inflation pressures mount and must be addressed. Fed funds could trade at 4.25% in 4Q08. Meanwhile, we expect the European Central Bank (ECB) will continue to favor an increase on interest rates well into the latter stages of the second quarter. During the summer of 2008 we see this trend reversing dramatically and the dollar regaining some of its previous status as the world's reserve currency. By year end 2008 we predict the Euro will be trading below US$1.20.
We see the global credit crisis growing and spilling over from mortgages into credit cards, auto loans, and student loans. The US economy is forced into a recession with the Fed rate cuts providing ineffective in stimulating the overstretched U.S. consumer. The Bank of England is pushed to cut rates aggressively as a slump in housing prices and over stretched consumer forces their hand. We may see rates dropping to 4.00% and cable (GBP/USD) falling back to 1.7000.
Contrarian public sentiment barometers suggest that the crowded short-USD trade will soon come to an end. Magazine articles, advertising and pop culture decrying the weak U.S. dollar is proven wrong in 2008. Supermodel Gisele Bündchen has been rumored to request payment in "only Euros please". Music mogul Jay-Z flaunted a fist full of Euros in a video. Lastly, McDonalds placed a dollar menu commercial where a group of office workers' attitudes are changed about the USD based on a double cheeseburger. We feel the US dollar may have an explosive year against all of the majors.
Heading into the Beijing Olympics, we expect the Yuan will finally be revalued as a signal by the PboC (The People's Bank of China) that China respects the wishes of fellow financial superpowers. The Olympics are an enormous success for the developing nation, as a revered culture showcases itself and its recent economic revolution. After the Games close, however, we predict the PBoC will turn reluctant again to dampen its exporting power and will remain large buyers of U.S. Treasuries.
We anticipate sovereign wealth funds will continue their buying binge, especially in the financial services sector. However, we see xenophobes sounding the bell against them, drawing unnerving parallels to pre-bust Japan in the 1980s. Ironically, we predict the capitalist ideas of the funds will prove a stabilizing force in the world, buying distressed assets and giving a boost to the U.S. Dollar. When the dust settles, we predict these funds' purchases will turn out to be ideal for world markets: the foreign funds own from bargain prices while the institutions utilize the liquidity and leverage the political relationships to make profitable inroads into growing nations.
Google or Gold? We see the race to $1000 being won by Gold. As "stagflation" becomes the economic catch-phrase of 2008, we see investors flocking back to the precious metal. Reluctant to own Dollars or Euros, global central banks may quietly purchase Gold as the "World's 3rd Currency".
In the midst of a recession in developed nations and the environmental "Green Movement", we predict crude oil will temporarily declines to $80/barrel. Unfortunately, we don't expect to see any relief for the ordinary consumer in 2008. Oil-refining capacity will probably tighten and crack spreads may rise, keeping gasoline prices at lofty levels. To the delight of Bank of Canada Governor David Dodge, USD/CAD may increase 10% by summer—but the move will be short-lived. In the second half of '08, we believe Middle East tensions will heighten as the Democratic Party's nominee will struggle against looking "inexperienced" in foreign affairs. We predict crude futures trading back over $100/barrel, confirming the long-term trend higher.
We foresee Barack Obama becoming the first African-American President of the United States. As a result, the U.S. Dollar retains its euphoric glide higher into year-end, but as uncertainty surrounds this "leader of change" and the Democratic platform of raising taxes on both corporations and individuals, we imagine this stifling US growth prospects. This double whammy may raise the red flag on U.S. equities and the U.S. Greenback into 2009.
In 1999, tech stocks were red-hot. In 2002, real estate took over. In 2006, commodities were king. We expect the currency market will hit mainstream in 2008. In the growing theme of globalization, where the internet and mobile devices have made the world a much smaller place, interest in the assets of other nations continue to soar. Already the world's largest market in dollar volume, currency trading may double as "Main Street" meets "Wall Street" and the individual investor could become an integral part of the FX world.

FOREX CLASSROOM

Foreign Exchange
Foreign Exchange is essentially the area where a nation’s currency is exchanged for that of another. The foreign exchange market is the largest financial market in the world, with over $ 1.7 trillion being traded on a daily basis with only 25% of this amount being in actual merchant position. The rest of the amount denotes trading or speculation that is the principal reason why currency markets are extremely volatile, being at least ten times faster than stock markets in any country. Unlike other markets, forex markets have no physical location or central exchanges and operates through an electronic network of banks and corporations. It is for this reason that Forex markets operate on a 24-hour basis, spanning from one zone to another across major financial centers. It is for this reason that constant monitoring across time zones are required so as to negate adverse movements or book extra-ordinary profits.

Fundamental Analysis
It is one of the two main approaches of analyzing and forecasting currencies and basically comprises of financial situations, economic theories and political developments. Thus the health of a currency of a particular country would be dependent upon growth rates of GDP, interest rates, inflation, unemployment, money supply and foreign exchange reserves. While stock markets, bonds and real estate prices would affect the state of a currency, the state of a government and natural calamities if any would also be major influences.Government Policies of a particular country also have impact on their currency. Currencies may be pegged to a particular major currency or it may be partially or fully convertible which would dictate the extent to which a currency would be open to outside influence. Also, Central Banks of a country intervene wither singly or in conjunction with another Central Bank to move or strengthen/weaken it’s currency by either intervening directly or by moving interest rates which should be taken into consideration while evaluating the health of that particular currency.
Technical Analysis
Technical Analysis can be defined as the art of identifying trend changes at an early stage and to maintain an investment posture until the weight of evidence indicates that the trend has reversed. It is basically different methods of charting and mathematical tools to analyze movements of price. Price itself has been defined in many ways but to grasp technical analysis, we must be able to understand the meaning of price. Price would best be defined as a figure, which moves between panic, fear and pessimism of the crowd in one hand and confidence, excessive optimism and greed on the other.Thus Technical Analysis is a method of predicting future price movements by examining the past pattern of movements in those prices. These movements are depicted in Charts and Diagrams, which are analyzed to point our major and minor trends so as to pinpoint points of entry into and exist from markets.
TRENDOne of the first things to learn is that the market is supreme and thus at no point should one try to over-rule the underlying trend of a market. The Trend is the Biggest Friend and it is always wise to catch that signal. One should only enter the market after identifying the long term and them the intermediate and short-term trend of the market. As regards patterns of currency movements remember that ‘a currency always goes UP by the LADDER BUT comes DOWN by a LIFT’. SUPPORT AND RESISTANCESupport and Resistance are points where a chart experiences recurring upward or downward pressure. A Support level is the low point of a chart whereas the Resistance is the high point of the pattern. It is advisable to BUY when the price is close to a Support and SELL when it is close to a Resistance. Remember, once these support / resistance points are broken, they become quite the opposites; in a rising market when the resistance level is broken, it becomes a support for the next set of movements and the vice versa. The various tools of analysis used by us in this section and for forecasting various trends and cycles are briefly explained for our readers.MOVING AVERAGESMoving Averages tell the price in a given point of time over a defined period of time. They are so called because they reflect the latest average, while adhering to the same time measure. The problem with using moving averages is that they are lagging indicators, which means they change only after a trend has changed. This can be overcome by using a shorter period or by combining two averages of distinct time frame. So if one use a combination of 40and 200-day moving average, buy signals are detected when the shorter-term average crosses above the longer-term average and a sell signal in the reverse combination. Assigning of weights to moving averages also alleviates the problem of a single or a few day’s volatile data giving wrong signals. MOMENTUM ANALYSISMomentum Analysis measures the underlying strength of a price movement or the rate of change of price rather than plotting the actual price itself. It is plotted around a zero line and results may be either negative or positive. It should be remembered that a Top in the momentum line does not mean that the price has reversed, only a move through a zero line signals a price reversal. Thus a momentum indicator signals acceleration or deceleration of a price and can be classified as a leading indicator.RELATIVE STRENGTH INDEX (RSI)RSI reflects the overbought or oversold position of a market. For this calculation, to compute support the RSI figure should be taken at 70 and for the purpose of Resistance, RSI should be taken at 30. However, this method should ideally be used in a consolidating market and would best be avoided in a trending market.BOLLINGER BANDSThis tool carries the advantages of other tools and tried to nullify their disadvantages and is calculated at 1.95/2.00 Standard Deviation of the Moving Average (usually 20 day period) which results in an envelope within which majority of the prices move. The bands of this envelope act as support and resistance so it is easy to buy at the lower end of the band and sell at the upper end. Entry and exit should best be done when a price has closed outside the band and is definitely a leading indicator.FIBONACCI SERIESThis is a very popular retracement series based on mathematical ratios arising from mostly natural phenomenon and is used to determine how far a price has rebounded or backtracked from its underlying trend. Since the series is like 1,1,2,3,5,8, 13, 21,34…, the ratios we get are 23.6%, 38.2%, 50%, 61.8%, 76.4% and so on.ELLIOT WAVE ANALYSIS This is done by classifying prices into patterned waves that can indicate future targets and reversals. Waves moving with the trend are called impulse waves and waves moving against the trend are called corrective waves. These Impulse and Corrective waves are broken down into five primary and three secondary movements respectively which forms a complete wave cycle and these can be further subdivided. These wave patterns needs to be identified so as to predict accurately and is best used in conjunction with the Fibonacci theory.

Forex Risk Management
Forex Risk Management refers to scientific study of currencies and devising various hedging techniques based of predictions of such currencies. The expected movements might be either in favour or against the underlying exposure of a particular organisation , and as such the hedging mechanisms should be geared to extract the maximum profit of / reduce potential losses arising from such trends.Though the studies of currencies are based on fundamental and technical analysis, expected trends are also greatly influenced by the sentiments of the market which can best be assessed from an inter-bank dealing room where inter-bank trades takes place. Eforexindia is equipped with professional dealers and state of the art technology and is backed by the dealing room of its parent concern M/s S.C.Dutta & Co. The various studies and risk management strategies, which are done to estimate risk
arising from the forex exposures of an organisation, are :
Exposure AnalysisCurrency and Market Forecasts.
Risk Appraisal and Evolving a Foreign Exchange Risk Management Policy.
Setting up Risk Management Goals.
Formulating Hedging Strategies Designed to meet such Goals.
Implementing such strategies with the assistance of our highly equipped Dealing Room.
Structured Review / Analysis.
Daily Currency Updation with Weekly and Special Forex Reports.
Emerging Products
a. Interest Rate Swaps
An IRS can be defined as a contract between two parties (called Counter Parties) to exchange, on a particular date in the future, one series of Cash Flows ( fixed interest) for another series of Cash Flows (variable or Floating Interest) in the same currency on the same principal amount (called Notional Principal) for an agreed period of time. The two payment streams are called the legs or sides of a swap. The exchange of Cash Flows need not occur on the same date. This means payment may be different for each side of the swap. So the variable rate may be paid monthly and the fixed quaterly, in which case the pricing of the swap can allow for discounted timing cost. Swaps, unlike FRA’s, generally do not net settle the difference between the agreed Fixed interest rate and the Variable interest rate. Netting of payments is however allowable. The Floating rate of interest is referenced to a short-term interest rate like the LIBOR in the international market or the MIBOR in the Rupee market. The Floating Rate used as benchmark or index is RMIBOR (Reuters Mumbai Inter Bank Offered Rate) or N-MIBOR (NSE Mumbai Inter Bank Offered Rate).The reset frequency for the floating rate index is the term for the interest rate index itself. However, the reset frequency for the floating rate does not necessarily match the timetable of the floating rate index. Therefore the floating rate may be set daily, weekly, month, quarterly while settlement dates may fall monthly, quarterly, semi-annually etc. If the reset date and the settlement date do not coincide, the swap is said to be “ paid in arrears set in advance”.Quoting of SWAP pointsThe pricing of swaps is against the fixed interest rate. At the start of a swap, the expected NPV is zero for both couterparties. Theoretically, the floating leg’s worth is the same as those of a fixed rate leg and thus swaps are a zero sum game at the inception. In case at the inception the NPV’s are not exactly equal, one party pays higher to compensate the price. Generally, swaps have been quoted in a number of ways, but the most commonly used is setting the floating rate equal to a short term index (such as a given maturity of MIBOR) with no margin or plus/minus a given margin, which are payable in the money market by the couterparties. When no margin is added to a floating rate, such rate is said to be quoted 'Flat'. The price of a Fixed /Floating swap is quoted in two parts : a fixed interest rate and a short term index upon which the floating rate is based. The convention is to quote All-In-Cost (AIC) which means the fixed interest rate is quoted relative to the floating rate index without any margin. After having set the floating rate, the fixed rate is set appropriate to it. Each bank quotes its own swap rate to exchange fixed cash flows interest for floating in each maturity. Further one should take care of different day count conventions to calculate interest that is 30 days month means 360 days a year or actual number of days elapsed since the previous settlement is due based on a 360 days year.EFFECT OF RATE CHANGES ON AN IRSFloating Rate payers will gain if interest rate falls, as they will have to pay lesser interest whereas fixed rate payer will loose as they are locked in fixed rate. In case the Interest rate rises, The Floating payer will loose and the Fixed rate will gain.UNWINDING SWAPS
The party who wishes to unwind a swap has the following three alternatives:
Swap Buy-Back / Closeout/ Termination/ Cancellation.
Swap Reversal with new swap equaling the remaining period of original swap with Same Reference Rate and Same Notional Principal.
Swap Sale or Assignment
THE MECHANISM OF IRSIt is a known fact that investors willing to invest in fixed rate instruments are more sensitive to credit rating of the issuer than credit rate lenders. To compensate for this a higher premium is demanded from the issuer of lower credit quality in the fixed rate debt market than floating rate market. The counterparties obtain an arbitrage by drawing down funds where they have greater relative cost advantage , subsequently by entering into an IRS to cover the cost of funds so raised from a fixed rate to a floating rate ad vice-versa. Here it is a win-win situation. Therefore two companies can come together to an agreement such that both can reduce their cost of borrowings. The fact that such opportunities exist is due to imperfection in the money market, that is the difference in risk-premium in fixed and floating market. An example will illustrate the point:Suppose that there are two parties to the swap viz. X and Y and a dealer arranges a swap taking a margin (spread). The deal is for Rs. Hundred Million in One Year.
b. Forward Rate Agreement (FRA)
A FRA is an agreement between two counter-parties to pay or receive the difference (called settlement money) between
an agreed fixed rate (the FRA rate)
the interest rate prevailing an a stipulated future date (Fixing Date),
based on a notional amount for an agreed period.
In short, in a FRA interest rate is fixed now for a future period. The special feature of FRA is that the only payment is the difference between the FRA rate and the Reference rate and hence is single settlement contracts. As in IRS, the principal amount is not exchanged.The settlement sum is calculated on the fixing date by discounting the difference between the previously contracted FRA rate and the then prevailing Reference rate. Money changes hand only on the settlement day and not on the transaction day or the maturity date. So if an investor wants to lock in reinvestment rate of January 3rd 2000 for 90 days and is quoted a FRA of 7 / 7.5% , it means he can lock-in an interest rate of 7% if he wishes to protect himself from a falling interest rate or 7.5% if he is concerned that interest rate will go up. The settlement date will be two days before the value/maturity date.FRA’s are expressed in terms of giving or receiving the fixed rate Vs short term interest rate index and are quoted numerically like
3 months rate starting in 3 months time is 3/6
3 months rate starting in 6 months time is 6/9
6 months rate starting in 3 months time is 3/9
Two-way quotes are available in the market and levels can be found on the Reuters (MIBORO2). The lower rate is the bid at which the bank is ready to pay fixed and the higher rate will be the offer rate at which the bank will be ready to receive fixed.We take the case of a borrower who has obtained a one-year credit amounting to Rs.10 lakhs on September 5th 1999. The interest rate is based on 6 months MIBOR. For the first six months MIBOR has already been fixed. Now he is not confident about the second six months, as he is not confident about what he has to pay and apprehends rates to rise. To protect himself he can buy a FRA for the next 6 months with a matching notional principal. Suppose a bank quotes him for 6X12 FRA 9.10 / 90 on September 3rd itself. He can lock in at 9.90% by buying 6X12 FRA on Sept 3rd itself for the period Sept 5th `99 to Sept 4th `2000. On 3rd March 2000 the 6 months MIBOR will be known (we assume 10%) and on that date the 6m MIBOR rate is compared with the FRA rate and the settlement amount is computed by discounting back to the beginning of the contract period using the formula below :
SA = ((SR – FRA ) X NP X CP) / 360 + ( SR X CP )
Where SA is Settlement Amount, SR is Settlement Rate, NP is Notional Principal and CP is Contract period. Using the data in our example we get :
(.10 - .099) X 10,00,000 X 182 / 360 + (.10 X 182) = Rs. 481.23
Thus the borrower would receive Rs.481.23 and this amount will be used to pay the extra 10bp (10% -9.9%). It is clear from the calculation that the net cost to the borrower will be the same as agreed under the FRA contract in both the cases. It should be remembered that the counter-party of a customer is always a bank as there is no secondary market and an FRA price should be analysed /calculated by always keeping the corporate's point of view and not that of the market maker or the bank. There is no restriction on the Notional Principal of FRA/IRS and any domestic money market or debt market can be used as benchmark to enter into FRA/IRS once the basis is computing is acceptable to both the parties. There are various Exposure and Capital Adequacy Norms that are laid down by the apex bank to whom all such deals have to be reported on a fortnightly basis. However the derivative market in India is at a nascent stage with an underdeveloped MIBOR market, absence of big public sector banks, uniform pricing mechanism and of course a shaky approach which is more psychological than lack of knowledge of the product and thus care should be taken in the initial stages by engaging professional consultants to avoid untoward losses by either not using the instrument available or using it in an erroneous manner.

Forex Markets in India - Some Thoughts

It gives me great pleasure to address this gathering of Forex professionals from all over the country. Looking at the list of speakers from the Central Bank who have addressed this August Assembly in the past. I find you have opted for change by inviting the regulator/supervisor rather then the exchange rate policy maker and manager from the RBI. Although I am not very certain as to why, maybe the fact that I was on your side of the market till a few months ago might have prompted this change!
Ever since I have accepted this invitation, I have been pondering about the content of this address. I shall not obviously be speaking at great length either about RBI's Exchange Rate Policies or Management. We have left nobody in doubt about our intentions in this regard i.e., ensuring orderly market conditions and combating excess volatility. Having achieved this to a great degree of success, even in the face of turmoil all around us, this is perhaps the ideal forum for an informed debate as to how we should move forward.

It was once Keynes who remarked that knowing nothing about the past makes a man as primitive as knowing nothing about the future. In other words, one cannot live in the present alone. Although in the financial markets, future need not have a link to the past, nevertheless, it is important to know a bit of the past to make informed predictions about the future. The outline of my address would therefore be to take a birds eye view of the past, reflect on the present scenario and chapter a road map for the future.
In a market orientated economy, segmented markets tend to obscure the transmission of public policies and often result in sub-optimal allocation of resources. In India for a long time the pace of development in the financial segment markets like the money market, foreign exchange market, government securities market, and the capital market have been slow and consequently the markets remained stagnated. A comprehensive package of reform measures recommended by the Narasimham Committee in 1991 became the starting point of gradual deregulation of the financial market. However, it was the implementations of the recommendations of the Sodhani Committee on foreign exchange markets that furthered the course of integration between call money market and foreign exchange market.

The linkage between the call money and forex market existed in a small way in the past as banks were permitted to maintain nostro account surpluses or avail of overdrafts in a limited extent. This has further strengthened following the introduction of FCNR (B) Scheme and particularly after the permission was accorded to burrow and lend overseas up to 15% of the capital. This linkage is often more pronounced in times of volatile market conditions.
The emerging linkages among money, Government securities and foreign exchange markets have required the RBI at times to use short term RBI measures alongside meeting demand-supply mismatches to arrest excessive volatilities in the foreign exchange market. While there is no settled conclusion about the appropriateness of an exchange rate regime, the primary objective of the Reserve Bank, as stated earlier continues to be the maintenance of orderly market conditions no doubt, in a regime where exchange rate is determined by demand and supply conditions. Some of the recent empirical works in the Indian context do suggest evidence of growing integration between money, debt and foreign exchange markets with relatively weak convergence of capital markets. In the aftermath of the terrorist attacks in the US, the Indian financial markets have sometimes exhibited some tendencies to be in tandem with the movements in global financial markets, reflective of the growing inter-linkages between domestic and international markets on the one hand and among various segments of the domestic financial market on the other, as a result of financial sector reforms and increasing globalization led by IT.

In this context, I would like to highlight some critical data regarding the forex market. There is a widespread feeling that market volumes have dropped significantly on account of certain measures taken by the Reserve Bank in the past like withdrawing the freedom to rebook cancelled forward contracts, placing restrictions on swabs etc. But the data collected by the Reserve Bank belie this belief. The average monthly turn over in the merchant segment of the forex market increased from USD 20 billion in 1999-2000 to USD 23 billion during 2000-01. The average monthly turn over in the inter bank foreign exchange market has also increased to USD 90 billion in 2000 -2201. A recent survey of the foreign exchange market turn over during April 2001 by the BIS in which 43 countries including India participated reveals the interesting fact that while forex turn over world over has declined considerable as compared to 1998, India bucks this trend by showing an increased turn over.

Let me now turn to specific issues relating to the Indian forex market that would need to be addressed. The market is skewed with a handful of public-sector banks accounting for the major share of the merchant transactions and private and foreign banks having a greater share of inter-bank business. It is conducive for healthy market development to have much larger number of players active in the market with enhanced volumes of business. The presence of increased number of players and larger volumes alone lend certainly greater depth to the forex market leading to a more efficient functioning.
Forex derivatives have not picked up sufficiently. The development of a vibrant derivatives market in India would critically depend on the growth in the rupee based derivative products, which in turn depends on a well-developed and liquid forward dollar-rupee market. This would in turn require development of a deep and liquid inter-bank term money market. In this regard, making tax laws pertaining to derivatives unambiguous and liberal will go a long way in the development of an active derivative market. In our market in its present stage, the focus of reforms should be the growth of rupee-based derivatives. The RBI took a major step in this context by putting in place an Asset-Liability Management(ALM) system for the banks. But any attempt at making ALM as a catalyst for the development of more vibrant and integrated financial markets would need to recognize the following characteristics of the Indian Financial System.

1) Retail nature of the Indian banking system that makes it difficult to get real time information. The answer lies in spreading technology based solutions.

2) Absence of clear-cut transfer-pricing system, firstly on account of lack of centralization of treasury operation and secondly on account of the absence of a rupee yield curve across maturities.

A recent article Zagorski in the Capital Markets News published by the Federal Reserve Bank of Chicago highlights the important transfer pricing system. To quote "without a well-implemented funds transfer pricing system the impact of interest rate risk is buried within the results of the other operating units. Thus a bank would not be able to accurately measure the profitability of either its Treasury units or its business units, and would not precisely understand the volatility of its net interest margin".

3) Absence of adequate instruments to hedge interest rate risk.There is also a need to put comprehensive risk management system in place. Risk management concept, such as, value at risk (VaR) need to be developed and implemented in India market. Technological up gradation in forex transaction, clearing and settlement is pre-requisite for developing a proper risk management system. The setting up of Clearing Corporation of India is a step in this direction. The Clearing Corporation of India, in addition to government securities, will also handle inter-bank forex settlements, which will go a long way in enhancing the efficiency and security of our settlement system for government and forex securities. The objective of forex clearing arrangement is to provide market infrastructure to mitigate and manage settlement risks while also reducing the costs associated with these transactions. The Corporation which is planning to act as a central counter party for effecting clearing and settlement through de facto multilateral netting is in an advanced stage of operationalisation. It is in interest of the authorized Dealers they become members of Clearing Corporation at the earliest and undertake the changes required in regard to their back office software systems to get them integrated with the CCIL system. I understand that shortly FEDIA will be organizing a seminar to help its members to expedite the formalities of taking up membership of Clearing Corporation to hasten the process of implementation of the project. Reserve Bank attaches considerable significance to an early operationalisation of the forex clearing system.
In the context of integration of Indian financial market with international markets, the move towards capital account convertibility, which has an important bearing on our forex market, assumes paramount significance. Some of the preconditions/signposts for capital account convertibility, as mentioned in the CAC committee report, such as, fiscal consolidation mandated inflation rate, consolidation of the financial sector, adequacy of foreign exchange reserves, sound BoP situation, etc need to be adhered to properly before rupee is made fully convertible on capital account. As CAC integrates both the real as well as the financial sectors with the international economy, the impact of external impulses would be felt more strongly, which makes it imperative to have the preconditions in place before full capital account convertibility is allowed.
In the present context, the major thrust of RBI Policies would continue to focus on the development of deep, liquid and integrated financial markets. The importance attached to the forex market would be evident from preamble to the newly enacted Foreign Exchange Management Act. One of the main objectives of FEMA is to promote the orderly development of the foreign exchange market in India.
In this context let us identify issues that are of immediate concern both to the market and to the regulator.
The first issue that would need to be addressed relates to depth and liquidity in the market particularly in the forward segment. It is well known that barring well-developed markets, forward markets are rather shallow in many of the emerging countries. Why? Given the constraints in such emerging markets are there any solutions.?
In most of the developing markets, liquidity is not there for maturities are not available beyond one year period. I believe that this would be the case in most of the markets where there are restrictions on capital movements. In other words, in markets dominated by trade related flows and which are not financially driven, where capital control exist, liquidity across the spectrum as seen in the developed markets, may prove to be difficult at least in the early stages of development of market. The question that we would need to address is within these constraints, how can the liquidity improve? Indian experience suggests that there could be two impending factors in this regard. First is the absence of a well-developed local money market and second more important the reluctance of larger public sector banks who handle the major portion of the export-import transactions to assume the mantle "market makers". While the solution to the first problem partly lies with the central bank and there have been many initiatives in this regard as I had stated earlier, it is entirely up to the bank managements to make their bank more pro-active in the market and realize that forex dealing rooms could be an important profit center, provided proper risk management systems are in place. You may have a point of view that liquidity has come down after the imposition of restrictions on re-booking of cancelled contracts. While this kind of liquidity is an emerging market, which often tends to get one sided, is a database issue, absence of this freedom is more acceptable than wide swings policy prescriptions whenever volatility erupts.
In the developing markets where volumes are not large, it has to be remembered that the positioning of the markets, types of players allowed entry into the market, the amount of unhedged position, all could prove crucial when turbulence erupts. The last mentioned issue that of unhedged positions of the corporates is currently attracting the attention world over. Reserve Bank would welcome and support efforts of bank in monitoring such positions on an ongoing basis since this is closely linked to the issue of credit risk as well.

A major issue that has attracted sustained debate among the Forex market participants during the last one year, has been the issue of long term rupee-foreign currency swap. This was permitted in 1997 as a hedging mechanism for corporates who run long term foreign currency exposures. When instances of use of this product to merely take a view on the currency movements and putting in place structures that would be tantamount to corporates effecting pre payment of the foreign currency loan were noticed, banks were advised last year to put through transactions only on a fully matched basis. The matter has since been reviewed and the banks accorded limited freedom to run a swap book. We are aware that banks have been raising a few issues in this regard and demanding greater freedom to make this product a genuine hedging tool. Reserve bank would continue to monitor transactions in this area and take pro-active decisions with a view to offering further relaxation wherever warranted.
There have been demands from the market players to be accorded greater freedom in the investment of foreign currency funds and using new products like options to better manage their balance sheet and proprietary trading positions. Given the fact that FCNR (B) deposits are presently accepted for maturity ranging up to three years, there is justifiable demands for permitting longer tenor investment out of these funds. Reserve Bank Of India is actively reviewing the current restriction in this regard. Although options could be a very useful to any managing risk positions, particularly at the Treasurer level, there have been very limited demands from the market for using this product. Reserve Bank is open to the suggestions from the banks for using new products to help them in better managing risk.
Finally, Reserve Bank is alive to the developments around us, with its epicenter in US that could have a bearing on the Indian Economy and the financial markets. Several groups within the Reserve Bank are reviewing the positions in its various dimensions on an ongoing basis. Options are considered as developments unfold and expectations are formed. Actions are explored as appropriate to meet the dynamic situation. Our actions since September 11, in regard to various financial markets testify to alertness and promptness of RBI, whenever considered necessary.
With these observations, I have great pleasure in inaugurating this Conference and wish your deliberations all success."

The Benefits of Online Currency Forex Trading

Online currency trading has brought the world of foreign exchange to the doorstep of the average person. Anyone can get started in the forex market and learn to make some extra money. Of course, making a profit is the only reason anyone gets involved in online currency trading, so it’s important to learn the ins and outs of the market before you plunge right in.
With online currency trading you have the potential to make a lot of money if you become an expert trader. And you never have to leave the comfort of your own home! Just remember, the more you learn about the forex market, the more success you’ll experience.
Online currency trading is a massive market – over a trillion dollars passes through the marketplace yearly. The popularity of forex has a lot to do with the fact that almost anyone anywhere in the world can access the market from a computer. Most people getting into the market for the first time, however, are ill-prepared for the challenges of currency trading. This is not a quick way to make a buck – you will have to invest a lot of time and effort into learning about forex before you can make a profit.
The technological advances of online commerce have allowed people across the globe to participate in online currency trading. It’s never been easier to become a trader, and start buying and selling foreign currencies. Online currency trading is readily available online, so all you have to do is search for reputable companies that allow you to make trades online in real time.

The unique thing about online currency trading is that the market is open for a longer period of time (24/7, 5 days per week) so that traders can make exchanges with people in other countries. With no central marketplace to do business, online trading has become the modern-day forum of trading operations. While the regular markets are closed for the day, you can keep on trading in the forex market.
Online currency trading is easily accessible, inexpensive, and offers the flexibility of after-hours operation. As you learn to invest and become accustomed to the different strategies employed by successful forex investors, making money won’t seem so difficult.
Online currency trading accounts are inexpensive to open, and allow you to start trading almost immediately. If you’re interested in getting involved with online currency trading, read books on the subject and immerse yourself in the lingo and terminology of the trade. Online currency trading may seem difficult at first, but once you get a handle on some of the techniques, it won’t be long before your initial investments start to pay off.
As long as you stay on top of the currency trading world, and read books and websites on the topic (there are many) investing in the foreign exchange market is something anyone can do successfully. Online currency trading makes it possible to buy and sell currency pairs from your desktop or laptop computer without a hassle.

Forex Trading

Forex trading isn’t strange words for those who looking forward to make quick profit in the financial market. Most investors will have at least hear or read about Forex trading. If Forex is a new term to you, please do read the Introduction to the Forex market before proceed reading this Forex trading article.
Forex trading is said to be the highest risk with highest return investment (or speculation game to be more accurate) in the financial market. The amount traded in the Forex market is much larger than any stock market or even combining few stock markets. Forex trading is simply a world wide trading market running 24 hours from Monday to Friday.
Everyday, there are new Forex traders entering into trading Forex. Some of them don’t even fully understand how Forex is traded but have already trading Forex. They are not idiot who want to burn their hard earned money, it’s just because Forex market is simply too lucrative market to enter with extreme high return. Any Forex traders can easily make a double return just in few minutes time trading Forex.
Forex trading is the trading of buying or selling certain currency. For example, buying US Dollar, then selling it later at a higher price to gain profit. Forex traders may also first sell US Dollar and later on buy it back at a lower price with the same gaining profit. It’s simple strategy of selling price minus buying price to make profit. In Forex trading, we just treat currency as a good, buy it and sell it.
You might now think how can Forex trading make huge profit just by selling and buying currency? Forex is traded using margin, Forex traders don’t need to full amount to buy any currency. For example, Forex traders just need 1000 Dollar to buy up 100,000 Dollar. This allows any Forex traders to make huge profit with little money.
Another important factor that any Forex traders can make huge profit is the high fluctuation for currency. Every day every seconds, the currency exchange rate is moving up and down, the Forex exchange rate fluctuate more heavily whenever there is any important economic data being released.
Forex trading is simply sounds too easy for anyone to make profit in very short time. But before you committed into Forex trading, it is strongly advised to have full understanding in Forex trading. Do read up other Forex trading articles in this website and share Forex trading knowledge in the Forex forums.

Forex Development History

In 1967, a Chicago bank rejected to provide pound loan to a professor named Milton Friedman, because his purposed was to use this fund to sell short the British pound. Mr. Friedman realized excessively that the price ratio from the British pound to US dollar at that time was high, he wanted first to sell the British pound, after the British pound fell he buys back the British pound to repay the bank again. This family bank rejects the loan offer based on the "Bretton woods Agreement" which was established 20 years ago. This agreement has fixed the various countries' currency to US dollar exchange rate, and the price ratio between the U.S dollar and the gold is also fixed to 35 US dollars to each ounce of gold.
The Bretton Woods Agreement was signed in 1944, the purposed was to prevent the currency to escape between countries, and also to limit the international speculation, thus to stabilize the international currency. Before this agreement was signed, the gold remittance standard system which was widely used since 1876 - was leading the international economy system until the First World War. In the gold remittance system, the currency was at the stable level under the support of the gold price. The gold remittance system has abolished the old time king and the ruler which depreciates the currency value unlawfully, which will lead to inflation.
But, the gold remittance standard system is certainly imperfect. Along with a country economic potentiality enhancement, it can import massive products from overseas, until it exhausts the gold reserve of certain country. It resulted the supply of the currency reduces, the interest rate raises, the economic activity will start to decline until it reaches the recession limit. Finally, the commodity price falls to the valley, gradually attracts other countries to stream in, massively rushes to purchase this country commodity. This will pour gold into this country, this will increase this country currency supplies quantity, and it will reduce the interest rate, and will create the wealth. This is so called the "the prosperity - decline” pattern and is the circulation of the gold remittance standard system, until the trade circulation and the gold freedom was broken by the First World War.
After several catastrophes wars, the Bretton Woods agreement has appeared. The countries which signed the treaty agreed to maintain the domestic currency to US dollar exchange rate, as well as the necessity of the corresponding ratio of the gold, and only allow a small fluctuation. Countries are prohibited to depreciate the currency value for the gain trade benefit, only allows the country to depreciate not more then 10%. Enters the 50's, the continuous growth of the international trade causes the fund large-scale shift which produces because of the postwar reconstruction, this causes Bretton Woods system which establishes the foreign exchange rate to lose stability.
This agreement was finally abolished in 1971, US dollar no longer could convert to gold. Until 1973, each major industrialized nation currency exchange rate fluctuation has been more freely, mainly regulates by the foreign exchange market through the currency supplies and demand quantity. The business volume, the transaction speed as well as the price variability, have achieved a comprehensive growth in the 1970's, come along with the emerge of price ratio fluctuation, the brand-new financial tool, then only the market liberalization and the trade liberalization could be achieved.
In the 1980s, along with the published of the computer and correlation technology, the international capital has flow rapidly, and strongly related the Asia, Europe and America market. Foreign exchange business volume from 80's rises daily from 70 billion US dollars to 150 billion US dollars after 20 years.

European market inflation

One of the reasons why the foreign exchange developed rapidly was the rapid development of the Euro dollar market. In a Euro dollar market, US dollar is stored beyond the border of America banks. Similarly, the European market is refers to property depositing outside the currency rightful owner country market. A Euro dollar market was formed at first in the 50's, at that time Russia deposited its petroleum income beyond the US border, avoid being freeze by the US government. This has formed a large offshore US dollar national treasury which is beyond the control of the US government. The American government has formulated a law to prohibited US dollar from lending money for the foreigner. Because the degree of freedom of the Euro dollar market is bigger and the rate of return is bigger, therefore it has large attraction. Starting from the 80's, the American company starts to borrow loan from the offshore market, they discovered that the European market is a wealth center which consists of large amount of floating capital which could provide short-term loan.
London once was (until now still is) one of the main offshore market. In the 80's, the Bank of England in order to maintain its global finance industry center dominant position, using US dollar as England pound substitution to make loan, thus to become a Euro dollar market center. London's convenient geographical position (is situated between Asian and Americas market) also helps to maintain the European market as the dominant position.

Characteristics of Forex Market

1. It consists market but no trading field
The finance industry in the western countries consist two sets of systems, namely the centralism business central operation and there is no fixed place for such business network. Stock trading is being traded through stock exchange. Like the New York Stock Exchange, the London stock market, the Tokyo stock market, respectively is American, English, the Japanese stock main transaction place, it is a centralism business financial commodity, its quoted price, the transaction time and hand over to the procedure all consist of unification the stipulation, and has established the same business association, it has formulated the same business rules. The investor could buy and sells the commodity through the broker company, this is known as "consist of trading market and trading field".
But foreign exchange business is done without any unification operation market and business network, it has no centralism unified place like the stock transaction. But, the foreign currency trading network actually is globally, and it has formed a organization which has no formal organization, the market is relied through an approval way and the advanced information system, Forex traders do not consist any membership qualification for any organization, but must obtain colleague’s trust and approval. This kind of Forex market which has no trading field is known as "consist of market but no trading field". Each day, the trading volume in the global Forex market involves billions of U.S dollars, the so huge large amount fund, is being control under both the non-centralism place and non central governance system, plus it is settle based on non-government governance.
2. Circulation work
Due to the different geographical position of the various financial centre, the Asian market, the European market, the Americas market because of the time difference relations, it has become an entire day 24 hour continued operation whole world foreign exchange market.
Early morning 0830 (New York time) New York market opens, 0930 Chicago market opens, 1830 Sydney opens, 1930 Tokyo opens, 2030 Hong Kong, Singapore open, before dawn 1430 Frankfurt opens, 1530 o'clock London market opens. So 24 hours uninterrupted movements, the foreign exchange market becomes a day and night market, only on Saturday, Sunday as well as the various countries' significant holiday, the foreign exchange market only then can close.
This kind of continued operation, provided no time and spatial barrier ideal outlet for investors, the Forex trader may seek the best opportunity to carry on the transaction. For instance, Forex trader buys up the Japanese Yen in the morning at the New York market, in the evening Hong Kong market opens the Japanese Yen rises, the Forex trader sells in the Hong Kong market, no matter Forex trader in where, he all may participate in any market, any time business. Therefore, the foreign exchange market may say is does not have the time and the spatial barrier market.
3. Zero and Game
In the stock market, the rise or the drop of stock market could influence the value of the stock whether to rise or drop, for example the Japanese new date iron stock price falls from 800 Japanese Yen to 400 Japanese Yen, the value of this stock has been reduced to half. However, in the foreign exchange market, the value of a stock and a currency is being calculated differently, this is because the exchange rate is refers to the exchange ratio both countries currency, the exchange rate change will influence one kind of monetary value to reduce and at the same time another kind of monetary value increase. For instance in 22 years ago, 1 US dollar exchanges 360 Japanese Yen, at present, 1 US dollar exchanges 110 Japanese Yen, this explains the Japanese Yen currency value rise, but US dollar currency value drops, in the end the value will not reduce or increase. Therefore, some people described the foreign currency trading is "zero and the game", exactly said is the wealth shift.
In recent years, investment foreign exchange market fund has continuously increased, the exchange rate fluctuation expands day by day, urges the wealth shift to be larger, the daily trading volume of the global foreign exchange involves 150 billion US dollars, the rise or falls 1%, means that the 150 billion funds has been shifted. Although the foreign exchange rate change is very big, but, any kind of currency will not become waste paper, even if some kind of currency unceasingly falls, however, but generally it represents certain value, only if such currency has been abolished.

Foreign Exchange (Forex) Market components

Trade and investment
Import and export business, people pays one kind of currency when doing business, but when earns another kind of currency when receive the commodity. This means that, when settling account, business people will pay and receive different currencies. Therefore, they must convert the currencies that they received into the currencies that they could buy commodities. With this similar, when buying a foreign property a company must use the concerned country's currency to make payment, therefore, it needs to convert the domestic currency is concerned country's currency.
Speculation
Currencies exchange rates could fluctuate according to the demand and supply between two currencies. A Forex trader buys up one kind of currency in an exchange rate, but up casts this currency in another more advantageous exchange rate, he may gain. Speculation has occupied most of the Forex market.
Hedging
Due to the fluctuation between two currencies, those companies who owns foreign asset (for example factory), when these companies convert these properties into cost country currencies, there consist of certain risks. When the value of a foreign asset which is estimated based on foreign currencies remained unchanged, if the exchange rate changes, when converting this property value according to the domestic currency, there could be profit and loss. The company may eliminate such hidden risk through hedging. This carries out a foreign currency trading, its transaction result just counterbalances the foreign currency property profit and loss which produces by the exchange rate change.
Forex Market Development
The history of the Forex market as an international capital speculation market is much shorter compared the stock, the gold, the stock, the interest market, but it is developing in an astonishing speed. Today, the foreign exchange market daily trading volume has amounted to 150 billion US dollars, it’s scale has gone far beyond the stock, the stock and other finance commodity markets, it has became the world's most biggest sole finance market and the also the speculation market. Since the birth of the foreign exchange market, the fluctuation of the exchange rate of the Forex market is becoming bigger. In September 1985, 1 US dollar exchanged 220 Japanese Yen, but in May 1986, 1 US dollar only could exchange 160 Japanese Yen, in 8 months, the Japanese Yen has revalued 27%. In recent years, the foreign exchange market wave amplitude has been bigger, on September 8, 1992, 1 pound exchanged 2.0100 US dollars, on November 10, 1 pound exchanged 1.5080 US dollars, in the short two months, the pound exchanged US dollar exchange rate to fall more than 5,000, depreciated 25%. Not only that, presently, everyday the fluctuation of the exchange rate of the Forex market enlarges unceasingly, within a day the rise and drop 2% to 3% is commonly seen. On September 16, 1992, the pound exchanged US dollar from 1.8755 to fall to 1.7850, the pound on first lowers 5%.
Due to the large fluctuation of the Forex market, it has created more opportunities for the investor, attracted more and more investors to join this ranks.

Introduction to Foreign Exchange Market

The foreign exchange market mainly deals in the trading of global currencies. Depending on currency projections, the currencies that are traded the most are Canadian Dollar, Australian Dollar, U.S. Dollar, Pound Sterling, Swiss Franc, Euro and Yen.
There are other currencies which are also traded but are done in smaller scale. The highest traded currency is U.S. Dollar. There are certain misconceptions regarding Forex market. Contrary to popular belief there is no central market where all the currencies are traded. The market is a combination of many contrasting markets, each of which has their own set of rules and regulations. As Forex depends on currency projections, it becomes impossible to trade properly due to the difference in time zones.
That is why the major markets located in Tokyo, London and U.S are opened at different hours. Almost two thirds of the trading that can be followed by currency projections happens during the convergence of New York market opening and European markets are still operating. Currency projections help mitigating the risk factor. The currency projections show that an exchange is done between parties. During a set period of time following currency projections, both parties switch one currency. The reverse as currency projections after the period runs out.
The top ten most active traders, who predict the currency projections well, do almost three quarters of total dealing. They are known as the inter-bank market and made up of international banks. Trading activities determined by currency projections done by them supply the market with bid and ask prices.
The prices are really tight for the retailers to cope with. The continuous movements in currency projections keep the Forex market a fast paced international currency exchange that crushes all competition amongst financial markets.Proper currency projections help financial organizations; prominent banks and International companies guarantee growth and maintain their popularity.