Question

Write a research paper on Foreign exchange markets explaining all that is involved concerning;

Function and Structure of the FX Market

The Forward Market with hedging

Answer 1

foreign exchange market market in which foreign currencies are bought and sold and it is a market where a lot of participants from different parts of world participate in order to discover the rate of currencies of different countries.

Foreign exchange market has different types of function-

A. Transfer function-the basic function of foreign exchange market is of conversion of one currency into another currency and it is used to convert various domestic currency into foreign currency and foreign currency into domestic currency so it does through a lot of demand and supply and their mechanism of price discovery

B. Credit function-foreign exchange market is also known for providing credits to various kinds of participants for carrying out various kinds of transaction the market related to exchange of foreign currencies and hedging purposes

C. Hedging function-foreign exchange market can be used for hedging purposes also, because various kinds of exposure in the foreign currencies like investment in other markets can easily be managed through having exposure into the foreign currencies hedging through Forward Market &futures market along with other derivative contract.

The Forward Market can use for hedging purposes because it it has various kinds of customised contracts which are traded over the counter and there are a lot of participants in order to carry out various kinds of trade for a future particular specific date to hedge various kinds of exposure.