A PROJECT REPORT

ON
UNDERSTANDING INVESTOR PERSPECTIVE TOWARDS FOREX MARKET IN
INDIA: A CASE STUDY OF INVESTORS FROM THANE AREA.

Submitted to University of Mumbai in

Partial fulfilment
Of the requirement of the Degree of
Masters in Commerce
BANKING AND FINANCE

Under guidance of
Dr. (Mr) SAGAR THAKKAR

VPM'S
KG Joshi College of Arts
N.G Bedekar College of Commerce
Thane (W)
Academic Year: 2019-2020

BY-
AASHIM HAROON MUJAWAR
ROLL NO 32

1
2
 DECLARATION

I MR AASHIM HAROON MUJAWAR student of Masters in Commerce (Banking and

Finance) Semester sem IV (2019-2020) hereby declare that I have completed the project on
UNDERSTANDING INVESTOR PERSPECTIVE TOWARDS FOREX MARKET IN
INDIA: A CASE STUDY OF INVESTORS FROM THANE AREA".
I further declare that the information contained in this project report is genuine, true and fair
to the best of my knowledge.

Signature
(AASHIM HAROON MUJAWAR)
Roll no.32

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 ACKNOWLEDGMENT

I take this opportunity to extend my sincere gratitude to MUMBA1 UNIVERSITY

responsibility for giving this project. This project gave me fabulous opportunity to develop
insight into the topic I adore. The research part involves in it imparted me the precious
experience of study the practical cases involved.

I am also thankful to Principal. Dr. (Mrs.) Suchitra A. Naik to help out in doing our project
and co-operating with us.

I am extremely thankful and pay gratitude to my project guide Dr. (Mr) SAGAR THAKKAR
provide me right direction and insight. Without her support and valuable guidance would not
have been possible to completion of this project.

I am also thankful for giving a knowledgeable practical guidance which has enhanced my
capability to understand materializes the topic that understandingly ported the making of this
project.

I am also thankful all my friends who have more or less contribute to preparation of this
projects.

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Q. No Sub.Q.no. Chapter Names Page No

5
Q.1 Introduction on
Forex Market

1.1 Introduction on 5
Forex Market

1.2 Definition of Forex 18

Market

1.3 Definition of Forex 19

Market

Company Profile
1.4 Introduction to 20
Forex Market
Overview
1.5 History 21

1.6 Journey and Vision 25

Q.2 Research and

Methodology
2.1 Objective of study 28
2.2 Scope of Study 29
2.3 Data collection 30

Q.3 Review of Literature 31

Q.4 Data Analysis

4.1 Data analysis and 44
Interpretation

Q.5 Conclusions and

Suggestions
5.1 Suggestions and 56
Recommendations
5.2 Conclusion 58
5.4 Bibliography 59
5.5 Questionnaire 60

CHAPTER- 1 INTRODUCTION
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 1. INTRODUCTION TO FOREX MARKET
Forex trading turns that little airport or ATM currency exchange into a sport.
When investors trade forex — commonly called FX — they’re buying and
selling currencies over the foreign exchange market. It’s the largest financial
market in the world but one in which many individual investors have never
dabbled, in part because it’s highly speculative and complex.

A little healthy trepidation serves investors well. Active trading strategies and
complex investment products don’t have a place in most portfolios. We strongly
recommend low-cost index funds for long-term goals like saving for retirement.
But maybe you have that balanced portfolio in place, and now you’re looking
for an adventure with some extra cash. Provided you know what you’re doing
— please take those words to heart — forex trading can be lucrative, and it
requires a limited initial investment.

Trading forex is different from stock trading in several ways:

Forex trades are made over the counter — trader to trader or through forex
brokers or dealers — rather than through a central exchange.
Because traders work across time zones, the forex market is open 24 hours a day,
five days a week.
Currencies are always traded in pairs, and prices are quoted in pairs.
Currency prices fluctuate rapidly but in small increments, which makes it hard for
investors to make money on small trades. That’s why currencies almost always are
traded with leverage, or money borrowed from the broker.

Because forex is traded in pairs, you’re always exchanging one currency for
another — buying one, selling the other — just like you would at a currency
exchange kiosk. There are seven currencies known as the “majors,” or the most
often traded: the euro (EUR), U.S. dollar (USD), Canadian dollar (CAD),
British pound (GBP), Australian dollar (AUD), Japanese yen (JPY) and Swiss
franc (CHF). The “major pairs” are these currencies paired with the U.S. dollar.
The size of each contract shall be USD 1000. c. The contracts shall be quoted
and settled in Indian Rupees. d. The maturity of the contracts shall not exceed
12 months. e. The settlement price shall be the Reserve Bank’s Reference Rate
on the last trading day. f. Only Indian residents shall be eligible for the
contracts.

1.1 HISTORY OF FOREX MARKET: -

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The barter system is the oldest method of exchange and began in 6000BC,
introduced by Mesopotamia tribes. Under the barter system goods were
exchanged for other goods. The system then evolved and goods like salt and
spices became popular mediums of exchange. Ships would sail to barter for
these goods in the first ever form of foreign exchange. Eventually, as early as
6th century BC, the first gold coins were produced, and they acted as a currency
because they had the critical characteristics like portability, durability,
divisibility, uniformity, limited supply and acceptability.
The foreign exchange market was backed by the gold standard at this point and
during the early 1900s. Countries traded with each other because they could
convert the currencies they received into gold. The gold standard, however,
could not hold up during the world wars.

1.2 WHAT IS FOREX MARKET: -

Forex (FX) is the marketplace where various national currencies are traded. The

forex market is the largest, most liquid market in the world, with trillions of
dollars changing hands every day. There is no centralized location, rather
the forex market is an electronic network of banks, brokers, institutions, and
individual traders (mostly trading through brokers or banks).

Many entities, from financial institutions to individual investors, have currency

needs, and may also speculate on the direction of a particular pair of currencies
movement. They post their orders to buy and sell currencies on the network so
they can interact with other currency orders from other parties.

The forex market is open 24 hours a day, five days a week, except for
holidays. Currencies may still trade on a holiday if at least the country/global
market is open for business.

1.3 Product definition of Forex Market: -

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 Within the foreign exchange market there is a range of contracts available
depending on the needs we want to cover. The products listed below are the
most representative ones of this market:

 Spot contract

a contract where two parties agree to exchange an amount in one currency for
another amount in another currency, based on the market price of those two
currencies. Generally, this exchange of amounts takes place two working days
(D+2) after the trade date (although some pairs have a D+1 exchange date, such
as is the case of the dollar and the Turkish lira USDTRY).

 Forward exchange contract

agreements between two parties to exchange a sum in one currency for another
sum in a different currency, on a future date later that exceeds two working
days. The terms of the operation that will take place in the future are agreed at
the present date (currency pair, term, amount, exchange rate). No funds are
transferred until said future date. Normally, we distinguish between exchange
risk insurance for exports (sale of foreign currency to convert it into domestic
currency) and exchange risk insurance for imports (purchase of foreign currency
in exchange for our domestic currency).

 Non-deliverable forward

in certain countries (Brazil, Colombia, Chile etc….) capital movements are

subject to controls or restrictions. In these markets, Non-Deliverable Forwards
(NDF) are used as foreign exchange hedging or speculation instruments. These
agreements are similar to exchange risk insurances, but instead of resulting in a
settlement with physical movement of capitals or principal amounts, the
counterparties settle the difference between the contracted NDF price or rate
and the prevailing spot price or rate on the settlement date (market reference
Fixing or Benchmark) and the amount to pay or receive is calculated based on
the notional amount (reference amount that is not exchanged) used.

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 Currency swap

this instrument accounts for the highest volume of operations in the currency
market (approximately 47%). Currency swaps are bilateral contracts, where two
parties agree to exchange two amounts in different currencies within a limited
period of time (e.g. six months). In reality, these instruments are the sum of a
cash amount and an exchange risk insurance; there is an initial exchange on the
Spot date (D+2) and a final exchange on the settlement date. The difference
between the spot exchange rate and the forward exchange rate is what is known
as swap points, which basically reflect the interest rate differential between the
two considered currencies.

 Foreign exchange options;

agreements between two parties where one buys, subject to the payment of a
premium, the right to buy (call) or sell (put) a currency in exchange for another
one, while the other party acquires an obligation to sell or buy said currency in
exchange for the premium. These are, together with the foreign exchange
futures, the only products of the foreign exchange market that are traded in
organized markets.

 Foreign exchange futures;

these futures are exchange risk insurances traded in organized markets, and
therefore, their characteristics, unlike the former, are standard; the price of
contracts, maturities, etc… We can trade them in the CME (Chicago Mercantile
Exchange), which is the most liquid organized market, and in other markets
such as Euronext and the Tokyo Financial Exchange.

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1.4 Benefits of Forex Market: -

 
1. Ability to go long or go short
While you can go short on other markets by using derivative products, such as
CFDs, short selling is an inherent part of trading forex. This is because you are
always selling one currency (the quote currency) to buy another (the base
currency). The price of a forex pair is how much one unit of the base currency is
worth in the quote currency.

For example, in the forex pair GBP/EUR, GBP is the base currency and EUR is
the quote currency. If GBP/EUR is trading at 1.12156, then one pound is worth
1.12156 euros. If you think that the pound is going to increase against the euro,
you would buy the pair (going long). If you think that the pound will decrease in
value against the euro, you would sell the pair (going short). Your profit or loss
will depend on the extent to which you get your prediction right, meaning it is
possible to profit whichever way the market moves.

2. Forex market hours

The foreign exchange market is open 24 hours a day, five days a week – forex
can be traded from 9pm Sunday to 10pm Friday (GMT). These long hours are
because forex transactions are completed between parties directly, over the
counter (OTC), rather than through a central exchange. And because forex is a
truly global market, you can always take advantage of different active session’s
forex trading hours.

It is important to remember that the forex market’s opening hours will vary in
March, April, October and November, as countries shift to daylight savings on
different days.

Does forex trade on weekends?

The forex market closes on Friday night at 10pm (UK time) and does not open
again until 9pm (UK time) on Sunday evening. However, because the market is
only closed to retail traders (not central banks and related organisations), forex

11
trading actually does take place over the weekend. This means that there can be
a difference in price between Friday close and Sunday open – known as a gap.

Traders need to be highly aware of the weekend forex trading hours and alter
their positions accordingly. If you do not want to expose your position to the
risk of gapping, you may want to consider closing your position on Friday
evening or placing stops and limits to manage this risk.

3. High liquidity in forex

The FX market is the most liquid market in the world, meaning there are a large
number of buyers and sellers looking to make a trade at any given time. Each
day, over $5 trillion dollars of currency is converted by individuals, companies
and banks – and the vast majority of this activity is intended to generate a profit.

The high liquidity in forex means that transactions can be completed quickly
and easily, so the transaction costs – or spreads – are often very low. This
creates opportunities for traders to speculate on price movements of just a few
pips.

4. Forex volatility
The high volume of currency trades each day translates to billions of dollars
every minute, which makes the price movements of some currencies extremely
volatile. You can potentially reap large profits by speculating on price
movements in either direction. However, volatility is a double-edged sword –
the market can quickly turn against you, so it’s important to limit your exposure
with risk-management tools.

5. Leverage can make your money go further

IG offers a way to trade foreign exchange pairs using CFDs. CFDs are
leveraged, which can make your money go further. Leverage in forex enables
you to open a position on the currency market by paying just a small proportion
of the full value of the position up front.

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 The profit or loss you make will reflect the full value of the position at the point
it is closed, so trading on margin offers an opportunity to make large profits
from a relatively small investment. However, it can also amplify any losses,
meaning losses could exceed your initial deposit. For this reason, it’s important
to consider the total value of the leveraged forex position before trading CFDs.

To help you manage your risk, IG offers a range of risk-management

tools including stop losses, guaranteed stops, price alerts and running balances.

6. Trade a wide range of currency pairs

Forex trading gives you the opportunity to trade a wide variety of currency
pairs, speculating on global events and the relative strength of major and minor
economies.

With IG, for example, you can choose from over 90 currency pairs, including:

 Major currency pairs,

e.g. GBP/USD, EUR/USD, and USD/JPY

 Minor pairs,

e.g. USD/ZAR, SGB/JPY, CAD/CHF

 Emerging currency pairs,

e.g. USD/CNH, EUR/RUB and AUD/CNH

 Exotic pairs,

e.g. EUR/CZK, TRY/JPY, USD/MXN

These pairs are all available to trade from the same account via a single login.

7. Hedge with forex

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Hedging is a technique that can be used to reduce the risk of unwanted moves in
the forex market, by opening multiple strategic positions. Although volatility is
part of what makes forex so exciting, hedging can be a good way of mitigating
loss or limiting it to a known amount.

There are a variety of strategies you can use to hedge forex, but one of the most
common is hedging with multiple currency pairs. By choosing forex pairs that
are positively correlated, such as GBP/USD and EUR/USD, but taking positions
in opposite directions, you can limit your downside risk. For example, a loss on
a short EUR/USD position could be mitigated by a long position on GBP/USD.

Alternatively, you could use forex to hedge against loss in other markets, such
as commodities. For example, because the USD/CAD generally has an inverse
relationship with crude oil, it is commonly used as a hedge against falling oil
prices.

Access tools to help you trade

IG offers a range of trading platforms on web, mobile and tablet, as well as

specialist platforms for those looking to take their trading to the next level. You
can get access to a range of features designed to help improve your trading,
including risk management tools – like stops and limits – as well as interactive
charts and integrated news feeds.

We also offer a number of products designed to help you improve your forex
trading: IG Academy is loaded with clear and engaging forex trading courses
designed with the beginner in mind

Our demo account gives you access to AUD$20,000 in virtual funds, so you can

try forex trading and our technology without committing any capital

1.5 Factors Affecting Forex Market: -

Over a period of time, it has been realised that the forex market can be affected
by certain macroeconomic factors. In this article, I would take you through
some factors that affect the forex market trading.
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To read about the basics and essentials of Forex market trading, you can
visit this article.
Let’s go through the list now. Here are the 9 Factors Affecting Forex Market
Trading

1. The Political Landscape

An economy grows when the government willingly takes steps to improve the
living standard of its populace. Thus, a stable government may be the first sign
of an investor-friendly country. It means the economy has fewer roadblocks and
higher chances to grow.

How it relates to forex market trading: A trader might buy the currency of a
country whose political conditions are stable.

Example in the world of Foreign exchange trading:

News of Brexit led to a dive in the value of the GBP when compared to the US
Dollar.

2. Inflation Rate

No surprises there. If the country’s inflation rate is relatively lower in

comparison to the other, its currency is expected to appreciate in value
compared to a currency with the higher inflation rate.

How it relates to forex market trading: An investor would seek to buy a

currency where the inflation rates are lower.

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Example in the world of Foreign exchange trading:
As you can see in the graph, as the inflation rose in Zimbabwe, its currency
value devalued aggressively.2 Thus, the Zimbabwean dollar is not an attractive
destination for Forex traders.

3. Interest Rate
I’d like to begin explaining this with an example of a shopkeeper selling pens to
five kids.

Let’s say you are the shopkeeper selling pens for INR 10. Now, five kids come
to you with 10-rupee notes demanding a pen, but the problem here is that you
only have three pens. One scenario is that you start a bidding war and the one
who needs it the most will bid double or triple the price of the pen. But wait!
There is another way.

Suppose you realise that two of those kids don’t really need the pen right now.
So, you tell them to deposit the 10 rupees with you and when you get new stock,
you will give it to them. To sweeten the deal, you say that you will give them 1
rupee along with the pen. The two kids agree and your problem is solved.

Granted, this is an oversimplification, but this is the logic whenever the central
bank decides that the inflation rate is growing out of control, it steps in to
control it by increasing the interest rates and thus, rein in the amount of
currency in the market.

An increase in interest rates is a good sign for investors as the currency rate
increases due to the increased interest rate for the currency.

How it relates to forex market trading: An investor will gravitate towards the
economy with higher interest rates as they increase their rate of return. This
increases the demand for the currency and in turn, increasing the exchange rate.

Example in the world of Foreign exchange trading:

The RBI has increased the interest rate to stem the fall of the Rupee.

4. Government Debt
Would you give money to a person who is already in debt? You wouldn’t.

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It’s the same concept here, higher the debt of a country, lower are the chances
of it attracting foreign capital, which in turn lowers the country’s exchange rate.

How it relates to forex market trading: An investor may see the government
debt trend over the years to determine if it is a sound decision to invest in the
currency of the country

Example in the world of Foreign exchange trading:

One of the reasons for the weakening of the Indian rupee is the government debt
which has not decreased due to the rise in oil prices.

5. Terms of Trade (Export Prices To Import Prices Ratio)

Terms of Trade can be addressed as the ratio of Export Prices To Import Prices.
If the country’s terms of trade are large, ie they have more exports than imports,
the currency will always appreciate and there will be demand for it. This means
its currency value will be greater than another country whose Terms of trade are
lower in comparison.

How it relates to forex market trading: An investor may like to invest in a

country whose exports are greater than their imports.

Example in the world of Foreign exchange trading:

As China’s terms of trade are mostly positive, it is an attractive source for forex
trading.

6. Speculation
This is not exactly a measurable factor. If there is speculation that the currency
rate will increase, other investors will demand more of the currency and its
currency rate increases further. The same holds true for the other side.

How it relates to forex market trading: The trick here is to identify a

bandwagon effect and make sure you are out of it before the effect wears away.

Example in the world of Foreign exchange trading:

In 2005-06, with low lending rates in the housing market in the US, there was
speculation that property prices would rise and this, in turn, would increase the
value of the dollar.

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 7. The Capital Market
You can get a rough idea of how the economy is doing by seeing the trend of
the capital markets. A lengthy dive of the stock market usually indicates low
confidence from the investors and thus, can be useful for predicting the
currency rate compared to the other country.

How it relates to forex market trading: If the capital markets show an

uptrend, it means the currency rate will increase.

Example in the world of Foreign exchange trading:

Since 2005, as the capital market soared in China, the USD/CNY currency pair
decreased, signifying that the yuan had strengthened.

8. Employment Data
Every country release employment rates periodically. This is another indication
of how well the economy is doing. A high unemployment rate means the
economy is not growing in line with the population of if the economy has
stagnated.

How it relates to forex market trading: A high unemployment rate could lead
to a depreciation in the currency value and thus decrease the forex rate of that
currency.

Example in the world of Foreign exchange trading:

After the US non-farms payroll report was released in September with an upbeat
tone, the US Dollar index (DXY) i.e. the performance of the US Dollar
compared to a basket of foreign currencies increased from 94.95 to 95.35.7

9. Economic Planning
The monetary and fiscal policy of a country will give you a good idea if it is
investor friendly or not. Thus, if the government has plans and incentives in
place to attract foreign capital, investors may flock to this country and increase
the demand for the particular currency.

How it relates to forex market trading: The country’s currency rate will

increase due to significant investments from overseas.

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Example in the world of Foreign exchange trading:
After the budget of 2018 was presented, in the domestic market, BSE and NSE
saw a downward trend and it was estimated that collectively, 4.6 lakh crore was
lost in Indian stocks.

When it comes to forex market trading, the rupee saw a 44 paise fall when
compared to the US Dollar.

These are a few factors which every investor should know before starting
foreign exchange trading.

After going through this article about various factors that affect forex trading,
not only do you know the basics of Forex trading Strategy, but you have also
understood how certain factors affect trading in the forex market.

DEFINITION OF FOREX MARKET OVERVIEW

DEFINITION OF FOREX MARKET OVERVIEW

Understanding the Foreign Exchange Market
The foreign exchange market – also called forex, FX, or currency market – was
one of the original financial markets formed to bring structure to the burgeoning
global economy. In terms of trading volume, it is, by far, the largest financial
market in the world. Aside from providing a venue for the buying, selling,
exchanging and speculation of currencies, the forex market also enables
currency conversion for international trade settlements and investments.
According to the Bank for International Settlements (BIS), which is owned
by central banks, trading in foreign exchange markets averaged $5.1 trillion per
day in April 2016.

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Currencies are always traded in pairs, so the "value" of one of the currencies in
that pair is relative to the value of the other. This determines how much of
country A's currency country B can buy, and vice versa. Establishing this
relationship (price) for the global markets is the main function of the foreign
exchange market. This also greatly enhances liquidity in all other financial
markets, which is key to overall stability.
The value of a country's currency depends on whether it is a "free float" or
"fixed float". Free floating currencies are those whose relative value is
determined by free market forces, such as supply/demand relationships. A fixed
float is where a country's governing body sets its currency's relative value to
other currencies, often by pegging it to some standard. Free floating currencies
include the U.S. Dollar, Japanese Yen and British Pound, while examples of
fixed floating currencies include the Chinese Yuan and the Indian Rupee.
One of the most unique features of the forex market is that it is comprised of a
global network of financial centres that transact 24 hours a day, closing only on
the weekends. As one major forex hub closes, another hub in a different part of
the world remains open for business. This increases the liquidity available in
currency markets, which adds to its appeal as the largest asset class available to
investors.
Forex is Foreign Exchange Market which is global decentralized market for
trading currencies. It is a buying, selling, exchange of currencies at a
determined price.

INTRODUCTION TO FOREX MARKET

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Forex trading started during the time of the Babylonians. This system was
designed for the currencies and exchange. In the early times, the goods are
being traded for another tangible item. When the metal age began, gold and
silver became the tool of transaction. This idea became popular during that age.

The creation of coins started then as well as the political regimes. When gold
became an important trading tool, its use became restricted; therefore; the result
which has been brought about by this is that the value of money has diminished.

A great panic happened then because people would like to exchange the value
of their money for gold. In 1931, the gold standard was removed and
the FOREX market was born; although people used to have a very small or no
notion at all about it.

Foreign exchange was introduced so citizens will have more monetary

stableness and reliability. Through the initiative of the USA in July 1944, the
new world’s currency was initiated with the use of the US Dollar. During those
times, IMF, World Bank and GATT were formed and agreed upon at Bretton
Woods. The agreement was comprised of the Gold Standard which will be
equal to $35.00 per ounce. Other currencies were also fixed with this standard.
The reason for this is to avoid destabilizing the monetary crisis.

History of Forex Market of India

A Discussion on Forex Market History in India
The foreign exchange currency trading in India is growing at a really good pace
however it is said that the forex market is still in the early phase in India.
Nevertheless, there are already several big players in the Indian forex market.
Let us find out details on the forex market history in India to know more about
Indian forex market.

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The history of forex market in India owes its origin to an important decision
taken by the Reserve Bank of India (RBI) in the year 1978 which allows banks
to undertake intra-day trading in foreign currency exchange. As a result of this
step, the agreement of maintaining ‘square’ or ‘near square’ position was to be
complied with only at the close of business every day. The history of currency
trading in India also clearly shows that during the initial period when these
economic reforms started, the exchange rate of national currency i.e. Indian
rupee used to be determined by the RBI in terms of a weighted basket of
currencies of India’s major trading partners. Moreover, there were some fairly
significant restrictions on the current account transactions.
Then again during early nineties, more economic reforms were introduced
which witnessed the important two-step downward adjustment in the exchange
rate of the Indian rupee in order to place it at a suitable level in line with the
inflation differential so that the competitiveness in exports could be maintained.
With these economic reforms which resulted in the unification exchange rate of
the rupee heralded the commencement of the new era of market determined
forex currency rate regime of rupee in the Indian forex history which was based
on the demand and supply principle in the forex market.
Another landmark in Forex history of India came with the appointment of an
Expert Group committee on Forex currency in 1994. This committee was made
to study the forex market in detail so that step can be taken out to develop,
deepen and widen the forex market in India. The result of this exercise was that
banks were significant freedom in many of its market operations related to like
forex market development and liberalization. The freedom was granted to banks
in term of fixing their trading limits, allowed to borrow and invest funds in the
overseas markets up to specified limits, accorded freedom to make use of
derivative products for asset-liability management purposes.
The corporate was granted the flexibility to book forward cover based on
previous turnover and were given freedom to make use of financial instruments
like interest rates and currency swaps in the international currency exchange
market. The other feature of forex history in India is that a large sum of foreign
exchange in India came through the large Indian population working in foreign
countries. However, the common man was not much interested in forex trading.
the things are changing now and with the growing economy more and more
people are showing interest in forex trading and are looking out for hedging
currency risks.

National Stock Exchange of India popularly known as NSE was the first
recognized exchange in Indian forex history to launch forex currency futures
trading in India. These currency futures are beneficial over overseas forex
trading especially to comparatively small traders and retail investors. Another
important point to know is that before discussing the history of forex market in
22
India, it is important to know the central government of India has the powers to
control transactions in foreign exchange and hence forex transactions in India
are managed by the government authorities.

Globally, operations in the foreign exchange market started in a major way after
the breakdown of the Bretton Woods system in 1971, which also marked the
beginning of floating exchange rate regimes in several countries. Over the
years, the foreign exchange market has emerged as the largest market in the
world. The decade of the 1990s witnessed a perceptible policy shift in many
emerging markets towards reorientation of their financial markets in terms of
new products and instruments, development of institutional and market
infrastructure and realignment of regulatory structure consistent with the
liberalised operational framework. The changing contours were mirrored in a
rapid expansion of foreign exchange market in terms of participants, transaction
volumes, decline in transaction costs and more efficient mechanisms of risk
transfer.

The Foreign Exchange Market

The foreign exchange (FX) market is the largest sector of the global financial
system. According to the 2013 Triennial Survey conducted by the Bank for
International Settlements, FX turnover averages USD 5.3 trillion per day in the
cash exchange market and an additional USD 2.3 trillion per day in the over-
the-counter (OTC) FX and interest rate derivatives market.1 The FX market
serves as the primary mechanism for making payments across borders,
transferring funds, and determining exchange rates between different national
currencies.
The Changing Marketplace
Over the last decade, the FX market has grown in terms of volume and diversity
of participants and products. Although commercial banks have historically

23
dominated the market, today’s participants also include investment banks,
brokerage companies, multinational corporations, money managers, commodity
trading advisors, insurance companies, governments, central banks, and pension
and hedge funds. In addition, the size of the FX market has grown as the
economy has continued to globalize. The value of transactions that are settled
globally each day has risen exponentially—from USD 1 billion in 1974 to USD
5.3 trillion in 2013.

What is the Foreign Exchange Committee and what are the Best
Practices?
The Foreign Exchange Committee (the Committee) is an industry group
sponsored by the Federal Reserve Bank of New York that provides guidance
and leadership to the global foreign exchange market through the development
and implementation of best market practices and through enhancing the broader
public’s knowledge and understanding of the foreign exchange market via
publications and other efforts. In all its work, the Committee seeks to improve
the efficiencies of the foreign exchange market, encourage steps to reduce
settlement risk, and support actions that facilitate greater contractual certainties
for all parties active in foreign exchange.

In 1998, the Committee recognized the need for a checklist of best practices that
could aid Nondealer Participants as they enter the foreign exchange market and
develop internal guidelines and procedures to foster improvement in the quality
of risk management. The original version of Foreign Exchange Transaction
Processing: Execution to Settlement, Recommendations for Non-Dealer
Participants was published in 1999 by the Committee’s Operations Managers
Working Group to serve as a resource for market participants as they
periodically evaluate their policies and procedures regarding foreign exchange
transactions. This 2015 update takes into account market practices that have
evolved since the paper’s original publication and supersedes previous
recommendations by the Committee regarding Non-Dealer Participants.

24
The purpose of this paper is to share the experiences of financial institutions
(those firms that are most active in the growing foreign exchange market) with
Non-Dealer Participants (the businesses that may participate in the foreign
exchange market on a more occasional basis). The twenty-two issues
highlighted are meant to promote risk awareness for Non-Dealer Participants
and provide "best practice" recommendations. Participants in prime brokerage
or similar arrangements should also be familiar with these Recommendations.
This collection of best practices may mitigate some of the trading and
operational risks that are specific to the FX industry. The implementation of
these practices may also help limit potential financial losses and reduce
operational costs.

Journey and Vision of Forex Market

In the simplest terms, what's meant by "foreign exchange" is the exchange of
one currency for another. A "spot" foreign-exchange market transaction is a
simple exchange of currencies at the current market price. A "forward"
transaction is a contract to buy or sell a quantity of currency at an agreed price
at some date in the future. Forward contracts are widely used by businesses to
manage foreign-exchange market risks. "Futures" are standardized forward
contracts traded on an exchange.
 
For businesses, foreign-exchange market transactions often have an underlying
purpose, such as paying a supplier or hedging a risk. Individuals, too, typically
perform such transactions when they need foreign currency for, say, going on

25
holiday. But on the other side of every business or individual foreign exchange
transaction is someone who makes money from trading currencies. These
people are called "traders." They make money by selling currency at a higher
price than they buy it for – a difference known as the "spread." The price at
which traders will buy currency is known as the "bid" price, and the price at
which they will sell is known as the "offer" price.
 
Forex traders take "positions" in currencies, which may be "long" or "short." If
they are "long" a currency, they have bought more than they have sold; if they
are "short" a currency, they have sold more than they have bought. Usually, a
short position is covered by borrowing, but it is possible for traders to do a
"naked short," where they enter into a contract to sell currency, they do not have
in the hopes of being able to buy it at a lower price before the contract expires.
A naked short is an unhedged bet that the currency exchange rate will fall.
 
Many businesses gain access to foreign-exchange market transactions via forex
"brokers." These are intermediaries who buy foreign-exchange trading services
and sell them to corporate and individual clients. Brokers can help businesses
find the most suitable foreign-exchange trading arrangements for their business
needs.
The forex market is the largest financial market in the world. According to the
Bank of International Settlements (BIS), in April 2016 trading on forex markets
averaged $5.1 trillion per day.2 It was 27 times larger than the equities (stock)
market, and four times larger than the entire global GDP.3
 
The foreign exchange market is also decentralized. There are no dominant
exchanges, except in futures trading. Instead, there is a global network of
brokers and traders, linked by technology. Participants in the market include
banks, corporations, investment management firms, hedge funds, retail investors
and central banks.4
 
The forex market consists of two sections: the interbank market, in which banks
and financial institutions trade currencies to manage their own forex risks as
well as those of their clients; and the retail (over-the-counter) market, in which
individuals and businesses trade through online platforms and brokers.5 Of these
two, the interbank market is by far the larger. In April 2016, 93 percent of
transactions were between financial institutions, the majority of them banks.6
 
Exchange rates are principally determined in the interbank market through
trading activity by large banks and financial institutions. Central banks also use
the foreign exchange market to stabilize their currency exchange rates by
buying and selling currency in sufficient quantities to influence the price.

26
In theory, any currency that is not subject to exchange controls by its country
government can be traded in the foreign exchange market. In practice, however,
forex trading is dominated by four currency pairs, known as "the majors":
 

 USD/EUR (dollar/euro)
 USD/JPY (dollar/yen)
 USD/GBP (dollar/British pound)
 USD/CHF (dollar/Swiss franc)

These currency pairs, together with their combinations (such as EUR/GBP,

EUR/JPY, GDP/JPY), account for more than 95% of all speculative forex
trading.8 The currencies in these pairs are the easiest to price and trade; of them,
by far the most dominant is the U.S. dollar. In April 2019, the dollar was on one
side of 88 percent of forex transactions.

CONCLUSION

In this Chapter 1 we can see introduction to forex market, history of forex

market, production definition of forex market, benefits as well as factors
affecting forex market, and journey and vison of forex market all the
information are taken from various websites such as
www.moneycontrol.com, www.forex.com
1992a Survey of Current Business 72(6).
Caves, R.E., J.A. Frankel, and R.W. Jones 1990 World Trade and Payments: An
Introduction. Glenview, Ill.: Scott, Foresman and Company.
Wheeler, J.E. 1988 An academic look at Forex Market. Tax Notes 40(1):87-96.

National Advisory Council on International Monetary and Financial Policies

1990 International Finance: Annual Report of the Chairman of the National
Advisory Council on International Monetary and Financial Policies to the
President and to the Congress for Fiscal Year 1990 
Stone-Tice, H., and L.J. Moczar 1986 Foreign transactions in the national
income and product accounts: An overview. Survey of Current
Business 66(11):23-36.

27
 etc, it helps me a lot to gain proper and accurate information about forex
market.

CHAPTER – 2 RESEARCH METHEDOLOGY

In order to conduct the research an appropriate methodology became necessary.

The information provided in this project has been collected from various
services.
The data the material for the project has been collected keeping in view the
objective of a project and accordingly data has been found out from the source.

28
The data has been collected referring the various books, websites, and other
sources related to banks. The data collected pertaining to theoretical aspects of
banks.

OBJECTIVES OF STUDY

• To find out the study of understanding investor perspective towards forex

market in India: a case study of investors from thane area.
• To find out the customer feedback i.e. improved required or suggestion.
• To find out the relationship with bank and the customers.
• To study the Satisfaction of customers toward the --- forex market.

29
• To identify the factor that influence the customer behaviour of --- forex
market.

SCOPE OF STUDY

 The present study was undertaken to know the preference of the customer
towards forex market. The problem of the customer is they are not aware
of the services provided by their bank. The study also forces on the
customer perception that how the banking services can be improved. In

30
 my study I have used both primary sources of data as well as secondary
sources of data.

 The study has been conducted on behalf of ---- forex market.

 The study covers the services providers and users of ---- forex market.

 The study has put forward the Customers as well as acceptability

behaviour for the services.

DATA COLLECTION

The data can be collected from primary and secondary sources. The basis
premises of my study primary data. Convenient sample that was representative
of the target market was chosen, the respondent was contacted personally and
instrument used for collecting data is questionnaire.

31
Statistical Data can be classified into two categories: -

1. Primary Data
2. Secondary Data

Primary Data: -
Primary data is collected by using questionnaire method, included with various
types of questions in it.
Secondary Data: -
The main sources of secondary data are combination of internet, specially the
scholar google website, various books of related topic and other sources related
to forex market.

Sample Size: -
Sample of 30 people was taken into study and their data was collected.

Sampling technique: -
To study the project, a simple random sampling technique is used.

CONCLUSION

In the Chapter 2, it shows research about this project, objectives of study,

scope of study, and data collection of the same.

32
 CHAPTER – 3 REVIEW OF LITERATURE

SUMMARY-
After going through previous studies of forex market., I came to conclude that
There is growth of forex market after 2007.

Bjorn Dohring
33
 discusses exchange rate exposure in terms of transaction risk (the risk of
variations of the value of committed future cash flows), translation risk (the risk
of variations of the value of assets and liabilities denominated in foreign
currency) and broader economic risk (which takes into account the impact of
exchange rate variations on competitiveness). He argues that domestic-
reinvoicing and hedging with exchange rate derivatives allow a fairly
straightforward management of transaction and translation risk and discusses
under which circumstances their use is optimal.
This study concludes that Euro area non-financial blue-chip companies
systematically use financial derivatives to hedge “transaction risk”. As
suggested by the literature on optimal hedging, hedge ratios seem to be close to
100% for firmly committed cash flows and lower for estimated or expected
flows. Short maturities up to two years are most widespread for exchange rate
forwards and options, while it is not unusual to see cross-currency swaps with
maturities of a decade or more. The management of “translation risk” is not
completely documented and seems to vary a lot across firms. In their approach
to longer-term “economic risk” some firms rely on rolling over of short-term
derivative hedges. Many reduce their exposure to economic risk by matching of
costs and revenues, either through financial instruments or through the
geographical structure of sourcing, production and sales. This is in line with part
of the empirical literature that suggests that operational and financial hedges are
complements. Overall, this paper suggests that euro-area exporters have
instruments at hand to protect themselves against euro appreciation and that
they make ample use of them. This has probably contributed to the
simultaneous strength of euro-area exports and
corporate profits in the face of the euro appreciation over the past years.

Mihir Dash
deals with the impact of currency fluctuations on cash flows of IT service
providers (who would be receiving foreign currencies), and explores various
strategies for managing transaction exposure from this viewpoint. The risk
management strategies considered for the study are: forward currency contracts,
currency options, and cross-currency hedging. The cash flows for the study
have been taken from a sample of one hundred and seventy-three selected
projects of different IT companies. The effects of hedging foreign exchange risk
using forward currency contracts, currency options, and cross-currency hedging
on each of these cash flows were calculated and compared. The forward

34
currency hedging strategy yielded the highest mean cash flows and the highest
mean percentage gain amongst the FOREX risk management strategies
considered.

(Dr. B.S. Badola)

is presently working as professor at university school of management,
Kurukshetra University Kurukshetra-136119, Haryana. He has 24 years
teaching experience. His subjects of interest include Investment Management,
Corporate Financial Management, Insurance and Quantitative Techniques.
Besides publishing more than 80 research papers in national/International
journals and magazines, Dr. Badola has completed four sponsored research
projects. Moreover, he has authored four books-
1. Performance of Mutual funds in India,
2. Insurance: Fundamentals, Environment and Documentation, 3. Risk and
Rewards of Equity Investment- A study of Select Asian Stock Markets, and 4.
Insurance Management.

(Reeta)
is presently pursuing Ph.D. in the university school of management,
Kurukshetra University Kurukshetra (Haryana) under the supervision of Dr.
B.S. Badola. She has 2 years teaching experience to MBA classes. She has
qualified UGC-JRF and her topic of Ph.D. is “A study of Financial Risk
Management Strategies Used in the selected Corporate Sector Units in India”.
Her area of academic Interest is Financial Derivatives, Forex Management.

Shehzad L. Mian, (1997)

35
provides empirical evidence on the determinants of corporate hedging decisions.
He examines the evidence in light of currently mandated financial reporting
requirements and, in particular, the constraints placed on anticipatory hedging.
Corporations are exposed to uncertainties regarding a variety of prices. Hedging
refers to activities undertaken by the firm in order to mitigate the impact of
these uncertainties on the value of the firm. Data on hedging are obtained
directly from disclosures made by 3,022 firms in their annual reports for 1992.
As a result, this study does not suffer from the non-response bias typical of
survey samples and yields results that are more readily generalizable to a
broader set of firms. This study provides evidence on the models of the hedging
decisions. The paper also examines whether the evidence is sensitive to
classification of all derivative users as hedgers. The study indicates that out of
3,022 sample firms, 543 firms disclose that they hedge their exposures or
disclose information related to their hedging activities. An additional 228 firms
disclose their use of derivatives but do not disclose that they engage in hedging
activities. The conclusions concerning the determinants of hedging are robust
with respect to treatment of the 228 derivative users as hedgers or speculators.

Ghose.T.P. (1998)
conducted a study on VAR (Value at Risk). There are two steps in measuring
market risk; the first step is computation of the Daily Earning at Risk; the
second step is the computation of the VAR. He stated that price sensitivity
could be measured by modified duration (MD) or by cash flow approach. He
reviewed the various types of risks in relation to the different institutions. He
opined that 'Managing risk' has different meanings for banks, financial
institutions, and non-banking financial companies and manufacturing
companies. In the case of manufacturing companies, the risk is traditionally
classified as business risk and financial risk. Banks, financial institutions and
non-banking financial companies are prone to various types of risks important
of which are interest rate risk, market risk, foreign exchange risk, liquidity risk,
country and sovereign risk and insolvency risk.

Sandun Perera
Impulse control with random reaction periods (ICRRP) is used to derive a
country’s optimal foreign exchange (forex) rate intervention policy when the

36
forex market reacts to the interventions. This paper extends the previous work
on ICRRP by incorporating a multi-dimensional jump diffusion process to
model the state dynamics, and hence, enhance the viability of the extant model
for applications. Furthermore, we employ a novel minimum cost operator that
simplifies the computations of the optimal solutions.

Kautilya in Arthashashtra
The above statement in Kautilya’s Arthashashtra clearly indicates that economic
activities are the root of wealth, but it is also true that expansion economic
activities leads to exposure to various types of risk. Risk and uncertainty are two
interrelated terms that needs to be differentiated at the early bid. Uncertainty is
as dark as a moonless night where nothing is visible, that means the future
which is uncertain and unknown. Risk, on the other side, is like afog through
which not clearly but something hazy could be seen, thus, giving a warning that
there is something unclear in the future. Nothing could be done for uncertainty,
but provisions. Risk cannot be completely eliminated, but mitigated. Since, the
risk is possible manageable, one effort for the maximum possible mitigation of
a particular risk. Lots of funds are being absorbed in risk management and,
hence, it is inevitable that the quality of the risk management is expected to be
at the pinnacle. Forex Market are one of the best instruments to manage
currency risk. Firms and financial institutions all over the globe are turning
towards the Forex Market so that their exposure to currency risk due to the
globalised businesses is mitigated in order to minimize the finance cost of their
activities. Forex Market include currency swaps, currency futures, currency
options and currency forwards. These derivatives, if used carefully, help the
firms and financial institutions to safeguard their available resources from the
never-ending fire of exchange rate volatility. Currency risk is a financial risk
that is posed by an exposure to unanticipated changes in the exchange rate
between two currencies. Currency risk may be of three types: translation,
transaction and economic exposure. Translation risk is the exchange rate risk
that is associated with those companies who deal in foreign currencies or list
foreign assets on their balance sheets. The greater the proportion of asset,
liability and equity classes denominated in a foreign currency, the greater the
translation risk. Transaction risk is the risk related to a future transaction that is
denominated in a foreign currency, thus, exposing a firm to possible losses of
revenue or increase in costs due to unfavourable exchange rate movements.
Transaction risk is most efficiently managed by using forward contracts.
Economic exposure refers to the degree to which the market value of a firm is

37
influenced by unexpected exchange rate fluctuations. Exchange rates have
always been volatile. Firms and financial institutions have been tackling with
the exchange rate risks with one or another way. But derivatives have been the
most notable tool for risk management.
Today’s world is getting smaller and the exposure to foreign economies is
increasing. In order to survive in this competitive environment firms, need to
focus over all ends, and particularly, the risk management.

Geczy, 1997
suggest that firms might use derivatives to reduce cash flow variation that might
otherwise preclude firms from investing in valuable growth opportunities. They
also added that firms with extensive foreign exchange-rate exposure and
economies of scale in hedging activities are also more likely to use Forex
Market. They concluded that the source of foreign exchange-rate exposure is an
important factor in the choice among types of Forex Market.

Levich et al, 1999

conducted a survey of 298 fiduciary institutions in the US in 1998 and they
found that at least 80 per cent of them permitted the use of derivatives to
manage risk. They conclude that exposure to currency risk should be managed
through hedging.

Keloharju & Niskanen, 2001

suggest that firms tend to borrow in periods when the nominal interest rate for
the loan currency, relative to other currencies, is lower than usual. This is
consistent with the currency debt issue decision being affected by speculative
motives. Large firms, with a wider access to the international capital markets,
are more likely to borrow in foreign currencies than small firms. They also
added that the use of foreign currency denominated debt enables firms to hedge
at a corporate level, presenting overall benefits through reduced tax liabilities,
minimizing costs of financial distress, and enabling retention of sufficient funds
to allow organic growth. Among the types of foreign Forex Market the firms
use, the forward contract is the most popular choice. More than 75 percent of

38
firms rank the forward contract as one of their top three choices among foreign
currency derivative instruments with over 50 percent ranking it as their first
choice.

Hagelin and Pramborg, 2004

conducted a study of the Swedish firms to investigate the risk reducing effect of
foreign exchange exposure hedging. Further, they also investigated risk
reduction from using different hedging instruments, particularly the impact of
transaction exposure hedges and translation exposure hedges. They found that
the firm’s foreign exchange exposure increases with the level of inherent
exposure, measured as the difference between revenues and costs denominated
in foreign currency, and, that it is decreasing with firm size. We find a
significant reduction in foreign exchange exposure from the use of financial
hedges. They claim that the using foreign denominated debt and Forex Market
together reduce the firm’s foreign exchange exposure. They also claimed that
firms can economic exposure by hedging translation exposure.

Goswami, Nam, & Shrikhande, 2004

suggest that financing of foreign projects using a domestic currency and
currency swaps is economically more beneficial than using a foreign currency
alone. Goswami & Shrikhande, 2007 claimed that firms which invest in foreign
markets will need foreign currency in order to carry out its operations and, thus,
it should inevitably use currency swaps to manage the currency risk. It is, thus,
obvious from the above literature that hedging through Forex Market has not
only been used by firms from the most beginning but also it has been
successfully implemented. Let us now move to the next part where we will be
discussing the various types of Forex Market and how they work as tool for
currency risk management. The theoretical literature provides mixed evidences
regarding the hedging techniques for foreign exchange risk management. Most
of the researchers have instated that hedging through Forex Market
is an efficient tool for currency risk management. Let us go through some
selected literatures which best suits our requirements. Among the types of
foreign Forex Market, the firms use, the forward contract is the
most popular choice. More than 75 percent of firms rank the forward contract as
one of their top three choices among foreign currency derivative instruments
with over 50 percent ranking it as their first choice.
39
Belk and Glaum (1990)
report the results of an empirical study undertaken during 1988 on how UK
multinational corporations try to manage their foreign exchange exposure. The
study was based upon research conducted in 17 major UK industrial companies.
Majority of the respondents feels transaction exposure management was seen a
centrepiece of their foreign exchange risk management. Despite the financial
literature demonstrating that accounting exposure is not a useful concept for
foreign exchange risk management, the study found that a majority of
companies were inclined to manage their accounting exposure actively. Further
surveyed MNC’s showed a lower degree of centralization and the majority of
respondents described their companies as ‘totally risk averse’.

Wai (1993)
conducted a survey of 61 listed companies in Singapore with an objective to
investigate the general practice adopted in foreign exchange risk 13
management. Investigation revealed that foreign exchange risk management is
an integral part of the operations of many companies in Singapore. The results
of his survey show that a majority of the companies, accounting for 75 percent,
adopt a centralized foreign exchange management system; 85 percent of the
respondents feel that they operate their treasuries as a cost centre; the survey
results show that some of these companies are prepared to take risks by leaving
some of their exposure un-hedged or by taking position in currencies. He
reports that 92 percent of Singapore companies hedge their foreign exchange
exposure on a case-by-case basis; only a negligible proportion goes for cent per
cent exposure cover. Survey finds that short-dated forward contracts are the
most widely used hedging techniques of Singapore companies; other derivative
instruments like futures, options and swaps are not popular amongst the said
companies. They found that Australian firms were using both physical and
synthetic products to offset the cash flows generated by the firm's foreign
operations and trade. The synthetic products used by these sample firms
included futures, options, swaps and option products. The physical products
included spot, forwards, forward forwards and short and long-term physical
swaps. Among the types of foreign Forex Market, the firms use, the forward
contract is the most popular choice. More than 75 percent of firms rank the

40
forward contract as one of their top three choices among foreign currency
derivative instruments with over 50 percent ranking it as their first choice.

Batten, Mellor and Wan (1993)

conducted industry-wide, cross-sectional study on foreign exchange risk
management practice and product usage of large Australian-based firms. Results
are discussed from an empirical field study of seventy-two firms operating in
Australia. Study finds that all firms hedge foreign exchange exposure. Survey
finds that 61 percent of the Australian firms manage transaction exposure only,
8 percent manage transaction and translation and 17 percent manage all three
exposures (other 14% have not given their response). They found that
Australian firms were using both physical and synthetic products to offset the
cash flows generated by the firm's foreign operations and trade. The synthetic
products used by these sample firms included futures, options, swaps and option
products. The physical products included spot, forwards, forward forwards and
short and long-term physical swaps. The survey suggested extensive use of
synthetics by the corporate sector with 35 firms (49 percent) using both physical
and synthetic products, four firms (6 percent) using only synthetic products and
the remaining 33 (46 percent) using physical products exclusively.

Bodnar, Hayt and Marston (1995)

conducted a survey of derivatives usage by US non-financial firms. Out of 350
firms took part in the survey, 176 from the manufacturing sector, 77 from the
primary products sector which includes agriculture, mining, and energy as well
as utilities, and 97 from the service sector. The study found that 76 percent of
all derivatives users in their survey manage foreign exchange risk using some
foreign currency derivative or the other. This percentage makes foreign Forex
Market the most commonly used class of derivatives among the surveyed
respondents. Among the types of foreign Forex Market, the firms use, the
forward contract is the most popular choice. More than 75 percent of firms rank
the forward contract as one of their top three choices among foreign currency
derivative instruments with over 50 percent ranking it as their first choice. OTC
options are also a popular foreign currency derivative instrument, with about 50
percent of the firms choosing this as one of their top choices. Among the
remaining instruments, swaps and futures are the most popular.

41
Marshall (1999)
conducted a simultaneously survey of the foreign exchange risk management
practices of large UK, USA and Asia Pacific multinational companies (MNCs).
He investigated whether foreign exchange risk management practices vary
internationally. From 179 (30%) usable responses it is shown that there are
statistically significant regional differences in the importance and objectives of
foreign exchange risk management, the emphasis on translation and economic
exposures, the internal/external techniques used in managing foreign exchange
risk and the policies in dealing with economic exposures. In general, UK and
USA MNCs have similar policies, with a few notable exceptions; however, Asia
Pacific MNCs display significant differences. To control for regional variations
in the characteristics of respondents the results are also compared by size,
percentage of overseas business and industry sector. It was found that either the
size of the respondent or the industry sector could also explain the emphasis on
translation and economic exposure and use of external hedging instruments.

Baba and Fukao (2000)

explore a new aspect of currency exposure of Japanese firms with overseas
operations. For the purpose of the study authors chose the firms classified in
electric and precision machinery listed on the Tokyo Stock Exchange. This was
because they are generally highly dependent on international operations such as
exports, imports of primary materials, and overseas production. The number of
the sample firms turned out to be 84, of which 74 firms belong to the electric
machinery industry and the remaining 10 firms belong to the precision
machinery industry. Empirical results show that in response to JPY’s
depreciation (appreciation), the values of the firms that are dependent on
overseas production declined (rose) after controlling for the effects via the
dependency on exports and imported primary materials. The result is consistent
with the prediction of the static version of currency risk exposure model. The
survey reveals that 55 percent of respondents believe that Euro has decreased
their exposure to foreign exchange risk. Theoretically, it could be expected that
the reduction in the currency risk results in reduced hedging, but survey
indicates that majority of respondent’s hedging remains unchanged.

Jonuska and Samenaite (2003)

42
 based on the response of 18 companies, studies the state of currency exposure
management in Lithuanian companies. The study focuses on the characteristics
of currency exposure management in exporting companies and the problem
encountered while using Forex Market. Most of the companies in Lithuanian are
aware of the currency exposure they face especially after pegging their home
currency Litas to Euro. Most of the companies try to manage currency exposure
by employing internal 22 methods of hedging. Study shown that are not popular
with Lithuanian companies. The hindrance in usage of derivatives is the
relatively high cost, lack of managers’ knowledge, mistrust in bank and
complicated accounting procedure. Those respondent companies who use
derivatives, mostly dependent on forward contract. Majority of derivative user
felt that they are not willing to pay option premium, since they consider this
derivative to be more complex to apply in risk management. Dairy, oil and
chemical industries are among the most highly exposed to US dollar
fluctuations, yet the specifics of those industries and financial markets make
hedging non-beneficial. Among the types of foreign, the firms use, the forward
contract is the most popular choice. More than 75 percent of firms rank the
forward contract as one of their top three choices among foreign instruments
with over 50 percent ranking it as their first choice. The findings suggest
similarities between firms in the two countries, with notable exceptions.

Pramborg (2004)
compares the hedging practices of Swedish and Korean nonfinancial firms.
Analysis is based upon the response from 163 companies which includes 60
from Korea and 103 from Sweden. The findings suggest similarities between
firms in the two countries, with notable exceptions. The aim of hedging activity
differed between the countries, Korean firms being more likely to focus on
minimizing fluctuations of cash flows, while Swedish firms favoured
minimizing fluctuations of earnings or protecting the appearance of the balance
sheet. The proportion of firms that used derivatives was significantly lower in
the Korean than in the Swedish sample.

Schena (2005)
explores the sensitivity of firm-level Chinese stock returns to changes in a trade-
weighted index of the RMB, as well as against the currencies of China’s major
trading partners, over the five-year period from 1999 to 2003. In assessing the
exposure and management of foreign exchange risk by Chineselisted
43
companies, the analysis suggests that despite the currency peg, internationally
oriented Chinese firms have experienced significant foreign exchange exposure.
Study finds that approximately 34% of sample displays a significant exposure to
changes in the value of one or more of the currencies of China’s major trading
partners against which the RMB is not pegged. Indeed, the exposure is
particularly acute against the yen. Furthermore, there was no 24 empirical
evidence to suggest that Chinese firms are engaged in hedging activities.

Chan-Lau (2005)
assesses foreign exchange exposure in the corporate sector in Chile and opines
that foreign exchange exposure in Chile is lower than other countries in the
region and similar to that observed in small industrialized countries. The most
exposed sector is the financial sector. However, this is not a major source of
systemic risk since a recent assessment of financial sector in Chile suggests that
banks can withstand severe exchange and interest rate shocks successfully.
Managing currency exchange risk has been facilitated by a well-functioning
forward market in Chile.

Edwina (2005)
reports on the foreign exchange risk management practices among Ghanaian
firms involved in international trade. The results indicate that close to one-half
of the firms do not have any well-functioning risk-management system. The
study found that among Ghanaian firm’s foreign exchange risk is mainly
managed by adjusting prices to reflect changes in import prices resulting from
currency fluctuation and also by buying and saving foreign currency in advance.
The main problems the firms face is the frequent appreciation of foreign
currencies against the local currency and the difficulty in retaining local
customers because of the high cost of imported inputs, which tend to affect the
prices of the final products sold locally. The results also show that Ghana’s
firms involved in international trade exhibit a low-level use of hedging
techniques.
Munda (2006)
examines the extent of foreign exchange risk management among Malaysian
multinationals and investigates the purpose of managing foreign exchange risks,
the types of risks managed and the extent of management control and

44
documentation of the foreign exchange risk management. The study which was
based on response from 54 MNCs, indicate that Malaysian multinationals are
involved in foreign exchange risk management primarily because they sought to
minimize the losses on operational cash flows which are affected by currency
volatility. Another finding of the study is that the 25 majority of multinationals
centralized their risk management activities and at the same time imposed
greater control by frequent reporting on derivative activities. It is likely that
huge financial losses related to derivative trading in the past led to top
management being extra cautious. Similarly, study proves that Malaysian
multinationals focused on managing short term transactions exposure rather
than other exposures.

Davies, and Eckberg (2006)

examines foreign exchange hedging by Norwegian exporting firms to provide
empirical evidence on the determinants of the hedging decision. The paper
contributes to prior studies by, first, focusing on exporters to ensure that the
companies in the sample have foreign exchange exposure, thereby allowing a
more rigorous test of the theoretical determinants of hedging, and, secondly, in
contrast to most previous studies that have focused on foreign exchange
external hedging instruments, the use of both internal and external instruments
is examined. The firm size, extent of internationalization and liquidity--are
found to be related to the decision to hedge foreign exchange risk. Unlike
empirical studies for other countries the evidence for Norwegian firms does not
support the hypothesis that the avoidance of financial distress and the need to
resort to external capital markets is a significant determinant of the hedging
decision. Whilst the evidence suggests that country-specific factors may play
role in determining the use of foreign exchange hedging, it does not imply that
the different policies adopted are necessarily inconsistent with the firm value
maximization hypothesis.

Salifu, Osei and Adjasi (2007)

examined the foreign exchange exposure of listed companies on the Ghana
Stock Exchange over the period January 1999 to December 2004. The study
was based on the secondary data of 20 listed companies. The study found that,
all the major currencies of international transaction of the country are sources of
foreign exchange risk to listed firms on the GSE. The US dollar turned out to be

45
the most dominant source of exchange rate risk at both the firm and sector
levels. Most firms had negative exposure coefficients and this suggests that, the
majority of the listed firms could 26 experience an adverse valuation effect
when the local currency (cedi) depreciates substantially against other foreign
currencies and benefit when the cedi strengthens in value relative to these
currencies. About 55 per cent of firms in the sample have a statistically
significant exposure to the US dollar while 35 per cent are statistically exposed
to the UK pound sterling. Sector specific exposure results show that the
manufacturing and retail sectors are significantly exposed to the US dollar
exchange rate risk. The financial sector did not show any risk exposure to any
of the international currencies.

CONCLUSION

In the Chapter 3, Review of literature, it shows a survey of scholarly sources on

this topic. It provides an overview of current knowledge, allowing to identify
relevant theories, methods, and gaps in the research.
Research Scholar, University School of Management, Kurukshetra University
Kurukshetra-136119, Haryana, India
University School of Management, Kurukshetra University Kurukshetra-136119,
Haryana, India
www.newyorkfed.org/research/derivatives_in_india

Allayannis, George and Ofek, Eli, 2001, “Exchange rate exposure, hedging, and the use of foreign
currency derivatives”, Journal of International Money and Finance, 20 (2001) 273–296

Asani Sarkar, 2006, “Indian Derivative Markets”, The Oxford Companion to

Economics in India, Available at
http://www.newyorkfed.org/research/economists/sarkar/derivatives_in_india.

Bjorn Dohring (2008), “Hedging and Invoicing Strategies to Reduce Exchange

Rate Exposure: a Euro-Area Perspective”, economic papers 299 Available at
http://ec.europa.eu/economy_finance/publications

Phillips, Aaron L., (1995), “Derivatives Practices and Instruments Survey”,

Financial Management, Summer, Vol. 24, No. 2, pp 115-125

46
 CHAPTER-4

DATA ANALYSIS AND INTERPRETATION

47
RESEARCH METHODOLOGY: -
Research methodology is a methodology for collecting all sorts information &
data pertaining to the subject in Question. The objective is to examine all the
issue involved & conduct situational analysis. The methodology includes the
overall research design sampling procedure &
Fieldwork done & finally the analysis procedure. The respondents are general
investors both male and female from Thane. The methodology used in the study
consistent of sample survey using both primary & secondary data.

DATA ANALYSIS: -
After data collection I’m able to analyse customer’s views, ideas, and opinions
related to forex exchange.

DATA INTERPRETATION: -
Interpretation of data is done by using statistical tools like pie diagram, Bar
graphs, and also using quantitative technique accurate information is obtained.

48
Q.1 Do you invest in forex market?

a) Yes
b) No

Yes 68

No 32

49
 No
32%
Yes
68%

Yes No
By trading forex, investors can access
a market that is far larger in scope than that of the stock market.
Because of its size, the stock market offers greater liquidity, which
means that investors may be able to enjoy lower transaction costs and
more easily enter and exit trades. Thus from 30 people 68% of people
invest in forex market, and 32% of people invest in other.

2. Which currency do you think is the most heavily traded or

utilized?
a. Dollar
b. Euro
c. British Pound
d. Japanese Yen
Japanese Yen All the important commodities in the
14%
British Pound
global market are traded in US$.
8%
Most of the international
Euro
Dollar
57% transactions between countries and
20%
companies are conducted in dollars.

Dollar Euro
50
British Pound Japanese Yen
It also remains the dominant reserve currency for central banks and
many institutional funds worldwide.
Such a high demand makes the US dollar the number one among
currencies in the forex market, followed by the Euro, Japanese yen,
and Pound sterling.

Q.3. Do you use hedging for currency risk?

a. Yes b. No

Hedging is a way for a company to minimize or eliminate foreign

exchange risk. Two common hedges are forward
contracts and options. The main difference between the hedge
methods is who derives the benefit of a favourable movement in the
exchange rate.
With a forward contract the other party
27% derives the benefit, while with an option the
73%
company retains the benefit by choosing not
to exercise the option if the exchange rate
moves in its favour. Thus 73% of people used
hedging for currency risk.
Yes No

51
Q.4. What are all the tools that you use as hedging?
a. Structural or balance sheet hedges
b. Swap contracts
c. Forward contracts
d. Future contracts
e. Invoicing in local currency
Structural or f. Options contracts
balance sheet
hedges
According to the results of the analysis,
Swap
19% 24%contracts forward contracts obtains rank 1 with a
10% Forward
5%
contracts
relative importance of 29 percent,
14% Future
which shows that forward contracts are
29% contracts
Invoicing in 52
local currency

Options
contracts
very frequently most used. The second-best technique in terms of
usage is structural or balance sheet hedges which obtains 24 percent
importance. On the other hand, there is very little difference between
futures contracts and options contracts. Though invoicing in local
currency is not a very complex hedging technique, it obtains a very
low ranking. Swaps contracts, which are very rarely used obtain 5
percent only.

Q.5. Are you aware of the current Dollar, Pound or Euro rates?
a. Yes b. No

3%
Yes
No

97%

Many of the people aware of the current

Dollar, Pound or Euro rates.

Q.6. Does foreign exchange value fall by its own?

12% a. Yes b. No

88% 53

Yes No
 The value of a currency depends on factors that affect the economy
such as imports and exports, inflation, employment, interest rates,
growth rate, trade deficit, performance of equity markets, foreign
exchange reserves, macroeconomic policies, foreign investment
inflows, banking capital, commodity prices and geopolitical
conditions, thus 88% of people believe this concept.

7. Is it possible for any country to remain completely unaffected

by development in the international market?
a. Yes b. No c. Maybe

17%
33% Yes
No
Maybe
50%

According to the analyse 50% of the

people think that it is not possible for any country to remain
completely unaffected by development in the international market,
while 33% of the people agree with it, and while on the other hand
17% of people are not sure about it.

54
 Q.8. Is demand and supply the only factors that determine
foreign exchange rates?
a. Yes b. No c. Maybe

There are 33 percent of the people who are

17%
agree with it, while 50% of the people
33%
believed that there are many key factors
50%
that determine foreign exchange rate such
as inflation rates, interest rates, country’s
current account / balance of payments,
government debt, political stability &
Yes No Maybe
performance, recession, and speculation.
While 17 percent of the people are not
sure about it.

55
 9. Do you think Indian Rupee is valuable compared to other
currencies?
a. Yes b. No

Yes Yes
33%
No
No
67%

Currency Exchange Rates

Currency exchange rate is the value of one country’s currency with
respect to other currency or the rate at which one currency will be
exchanged for another. For example, an interbank exchange rate of
46.53 INR to the New Zealand Dollar means that ₹46.53 will be
exchanged for each 1 NZ$ or that 1 NZ$ will be exchanged for each
₹46.53.

56
The currency exchange rate depends on:
–Political Conditions of a country
–Economic Conditions
–Inflation/Deflation
–Central Bank’s Interest Rate (In India, it is RBI’s interest Rates)
–Trade with other countries in that currency
Indian Currency Exchange Rate is weak against few countries and
strong against others.

List of Few World Currencies where Indian Currency is Stronger

1: Indonesia
2: Vietnam
.

List of Few World Currencies where Indian Currency is Weaker

1: The United States of America
2: Europe

10. Would you ever like to invest in currencies of other countries?

a. Yes b. No

11%
Yes
No

89%

Investing in foreign currency can be

a great way to diversify your portfolio. Foreign currency trading, or
forex for short, is a little more complex than trading stocks or
mutual funds, or shoring up your investment strategy with bonds.
Forex trading always happens in pairs. For a transaction to be
complete, one currency has to be exchanged for another. For
example, you might buy U.S. dollars and sell British pounds or
vice versa. While you could technically exchange any foreign

57
 currency that’s traded on the market exchange for another, it’s
more common to trade using pre-establishing pairings. Thus 89%
of people are like to invest in currencies of other countries while 11
are not sure about it.

Q. 11. How frequently do you trade forex?

a. Daily b. Weekly c. Monthly
It depends a lot on the underlying
situation. For example, some traders
9% focus on investing while others focus
Daily
28% Weekly on micro-moves. Professional traders
63% Monthly
are always aware of the dangers of
trading too frequently, they know that
it is a very short stretch from entering
one too many trades to full-scale
addiction to the forex market. This
typically means that most professional traders are not day trading
or scalping, instead they are focused on multi-day positions and
look to take a good slice of the action that takes place in the market
each week or month. Thus 63% of the people are believe to trade
forex montly, while 28% are in weekly and remaining 9% are in
daily.

CONCLUSION
In Chapter 4, it shows the research methodology, data analysis, data
interpretation, and all the question and answer with the help of pie diagram, Bar
graphs, and also using quantitative technique. The respondents are general
investors both male and female from Thane.

58
 CHAPTER 5
CONCLUSIONS AND SUGGESTIONS

CONCLUSION

The project entitled. UNDERSTANDING INVESTOR PERSPECTIVE

TOWARDS FOREX MARKET IN INDIA: A CASE STUDY OF
INVESTORS FROM THANE AREA " has helped me in studying the Forex
Market.
The Indian forex market has experienced an impressive growth since its
introduction of futures and options. The upward trend of the volumes and
open interest for currency futures and options explains the progress in detail.
currency futures have proved to be a good tool for hedging the risk involved
in the currency of a country (currency risk). It is hoped that the forex market
will develop faster and it will be a good choice for all the market participants
in the near future and it will find its way in the Indian economy. The growth
in terms of volumes and participants in the Exchange Traded Segment would
improve the process of assimilation various global and domestic economic
information into the markets while it discovers its exchange rates. Extension

59
 of trading hours would also help participation in the exchange traded
markets to mature in terms of reflecting information into markets and
thereby become efficient in their price discovery process, besides remaining
as the cost-effective market for participants.
The project is also helped me to learn a new thing about forex market. By this
project I know that many people both male and female are investing in forex
market they know much about it and gaining plenty of profit from there. Thus,
this is a best way.

SUGGESTIONS & RECOMMENDATION

The forex market take growth in recent years and the prospects of continued
buoyancy in demand have attracted many players to the industry. The result-cut
throat competition, which has benefited the people.
Key Benefits: As a result of this report you will be able to:
• Assess where the market is today and put into perspective where it is going
tomorrow.
• Evaluate the planned global foreign exchange clearing service, CLSS and
assess how it will decrease worldwide settlement risk.
• Identify how EMU is changing forex market and evaluate how much impact it
will ultimately have.
• Access the thoughts of prominent bank foreign exchange executives on the
directions the market is taking and what they are doing to prepare.
• Assess whether the proportion of trading conducted over electronic matching
systems has a natural limit and whether it will prove as successful in the
forward and options markets as it has in the spot markets.
• In the near future the change in Forex market should revolve around following
key areas:

60
Capital Account Convertibility; We can expect lots of liberalization towards
capital account during the next 3-5 years as the new stable government has
formed which is committed to economic liberalization. Here government may
take some cautious approach because once capital market is open it is very
difficult to control the price of rupee due to large amount and volume involved.
Exchange Traded Derivatives: As OTC is less transparent, we can expect more
exchange traded product will be launched after the initial success of currency
futures, which was launched last year. Due to restriction on OTC derivatives in
Indian market the entities outside finds it difficult to hedge their direct or
indirect exposure in Indian rupee market and these exchange-traded derivatives
may help in hedging. These products bring transparency, bring mark-to-market
concept, eliminate counter party risk and provides access to all type of market
participants.
Customized and Exotic Product: We have recently seen that the many corporate
has suffered huge loss on Forex derivatives exposure due depreciation of rupee
on account of USD. These losses lead to credit risk for the banks who has
offered the derivative product. In such scenario we can expect more customized
product as per the requirement of customer in the market.
The forex market is undergoing major changes due to competitions and the
advent of technology. The investor is looking for better quality services which
enhance his/her satisfaction and to gain more profit. From the above analyses it
is evident that
forex market has many positive features and the investors are mostly satisfied
with it. In spite of this fact, it has been observed that many investors are not
aware of all fact of forex market.

61
 BIBILOGRAPHY

www.surveymonkey.com
www.wikipedia.org
www.google.co.in
www.moneycontrol.com
www.forex.com
www.investopedia.com
www.scribd.com
www.infibeam.com
www.economictimes.indiatimes.com
www.exchange-rates.org
• http://wmv.slashdocs .com/kvuttx/fem.html
• http://www.travelspk.com/forex/Forex-Development- History. html
• http://www.global-view.com/forex-educationtforex-learning/gftfxhist.html

62
 • http://en.wildpedia.org/wiki/Foreign_exchange_risk

ANNEXURE

QUESTIONNAIRE
FOR THE UNDERSTANDING INVESTOR PERSPECTIVE TOWARDS
FOREX MARKET IN INDIA: A CASE STUDY OF INVESTORS FROM
THANE AREA

1. Do you invest in forex market?

a. Yes b. No

63
 2. Which currency do you think is the most heavily traded or
utilized?
a. Dollar
b. Euro
c. British Pound
d. Japanese Yen

3. Do you use hedging for currency risk?

a. Yes
b. No

4. What are all the tools that you use as hedging?

a. Structural or balance sheet hedges
b. Swap contracts
c. Forward contracts
d. Future contracts
e. Invoicing in local currency
f. Options contracts

64
5. Are you aware of the current Dollar, Pound or Euro rates?
a. Yes
b. No

6. Does foreign exchange value fall by its own?

a. Yes
b. No

7. Is it possible for any country to remain completely

unaffected by development in the international market?
a. Yes
b. No
c. Maybe

8. Is demand and supply the only factors that determine

foreign exchange rates?
a. Yes
b. No
c. Maybe

9. Do you think Indian Rupee is valuable compared to other

currencies?
a. Yes
b. No
65
10. Would you ever like to invest in currencies of other
countries?
a. Yes
b. No

11. How frequently do you trade forex?

a. Daily
b. Weekly
c. Monthly

66
67