Foreign Exchange Is The Exchange Of One Currency

The Balance of Payments in India mainly relies on services exports, remittances and the course capital flows, both foreign direct investments (FDI) and FII. It is very essential that all market participants, such as banks and other intermediaries be provided with the wherewithal so that they can undertake a risk management in a way that is scientific. One of the ways to access domestic, foreign exchange markets is to hedge on the underlying foreign exchange exposures. In addition, the facilities that are available as the booking of forward contracts were included in the domestic forex market in order to evolve and acquire volumes and depth (Sumanth, 2012). Some of the newer hedging instruments have put in place swaps and options in the

One needs to have a base level understanding of what defines an exchange rate. According to Investopedia, a foreign exchange rate is “The price of one country's currency expressed in another country's currency. In other words, the rate at which one currency can be exchanged for another.”(Investopedia, 2012) The process by which foreign exchange rates are determined is really not any different than any other

In this literate review the most important papers about explaining stock returns from 1952, when Markowitz came up with Modern Portfolio Theory, till around 2011 will be discussed. As stated in Chapter 2, Jack Treynor was one of the first economists that started to work on the CAPM model. When he developed the CAPM in 1961, there was no way yet to fully test it. Because there were no samples large enough or of sufficient quality, the real testing of the CAPM started in 1970. In 1973, the world was shown the famous Black and Scholes options pricing model. One of the first studies that gave a different answer than the CAPM was the research by Basu (1977). While he agrees with the Efficient Market Hypothesis, Basu reaches another

During the second half of 1997, currencies and stock market prices plunged in value across Southeast Asia, beginning in

Foreign exchange rates are best described as simply the price of a country’s money expressed in another country’s money. In simple words, it is the rate at which a currency can be swapped for another. An example of determining foreign exchange rates is by substituting goods for currencies. Another example is the yuan-dollar exchange will depend on how well the demand and supply moves. When the demand for dollars in China climbs and supply does not go up correspondingly, each dollar will cost more yuan to buy. (Colander, 2010)

Exchange Rate: "The rate at which one unit of domestic currency is exchanged for a given amount of foreign currency"

In order to minimise the effect of the potential losses due to foreign currency exchange rate, it essential to understand the use of financial instrument.

Financial theory accepts the belief that a share’s return should be proportional to the risk received by its holder. There is a need of a risk-return equilibrium model. Since the nativity of the efficient market hypothesis (EMH), an equilibrium model was only the Capital Asset Pricing Model (CAPM). The CAPM constitutes of two types of returns, the risk free rate of returns of the Treasury bills and beta times the return on the market portfolio. The following equation is the basis of this model:

We first illustrate the concept of “Carry Trade”. It is the process whereby an investor borrows money from a low-interest country, uses the fund by converting (i.e. selling) it to a different currency yielding a higher interest rate. The aim of carry trade is to profit from the interest rate differential between the 2 countries involved. Huge profits as well as substantial lost are most of the time the likely benefit and downside risk respectively. First thing to look for when starting a carry trade is to look for the two currencies offering a high and low interest yield.

Foreign exchange ________, on the other hand, earn a profit by bringing together buyers and sellers of foreign currencies and earning a commission on each sale and purchase.

Foreign exchange rate determines the price exchange of two currencies. Changes in these rates affects the amount of goods and services import and export of a country. When a country currency is stronger, it is now exchanged for more goods than before, and once the currency is weaker, less of goods are purchased for the same amount of the currency. Financial institutions use the exchange rates changes to decide whether to buy/sell financial assets such as bonds, stocks, etc. That means, they will buy and sell foreign assets to gain profit. The value of these assets increases or decreases as the exchange rates change. If the dollar

Even though there are flaws in the CAPM for empirical study, the approach of the linearity of expected return and risk is readily relevant. As Fama & French (2004:20) stated “… Markowitz’s portfolio model … is nevertheless a theoretical tour de force.” It could be seen that the study of this paper may possibly justify Fama & French’s study that stated the CAPM is insufficient in interpreting the expected return with respect to risk. This is due to the failure of considering the other market factors that would affect the stock price.

What is an exchange rate? Exchange rate is a price for that one country’s currency can be traded for another country’s currency, which involves always two currencies. The price of a currency is determined by the country’s currency’s demand relative to its supply in the market. Furthermore, there are many factors that impact exchange rates but the most influential factors are inflation rates, interest rates, income levels, government controls, and expectations. Due to rapid economic developments and changes and many factors that impact exchange rates, it is hard to determine exchange rates.

The random walk model suggests that the current exchange rate is the best predictor of the future exchange rate. In other words, the current exchange rate reflects the future exchange rate. However, this model is questioned, past history of the exchange rate can’t predict the future of the exchange rate so we can say that the random walk model is inconsistent with the technical analysis because it tries to use today’s exchange rate to predict tomorrow’s exchange rate.

i) The exchange rate is the rate at which one can exchange the currency of one country for the currency of another country. It can also be regarded as the value of one country’s currency in relation to another currency. Basically, it is the price of a nation’s currency in terms of another currency. Therefore, the exchange rate has two components, the domestic currency and foreign currency, and it can be quoted directly or directly. In a direct quotation, the foreign currency is the base currency and the domestic currency is the counter currency. While in an indirect quotation, the domestic currency is the base currency and the domestic currency is the counter