A foreign exchange transaction is an agreement between a buyer and a seller that a fixed amount of one currency will be delivered

for some other currency at a specified date As per Foreign Exchange Act, (Section 2), !"#$ (c) %Foreign &urrency% means any currency other than 'ndian currency( (d) %Foreign Exchange% means includes any instrument drawn, accepted, made or issued under clause ()) of section # of the *an+ing ,egulation Act, !-., all deposits, credits and balance payable in any foreign currency, and any drafts, traveler/s che0ues, letters of credit and bills of exchange, expressed or drawn in 'ndian currency but payable in any foreign currency( 1he mar+et where the commodity traded is &urrencies$ 2rice of each currency is determined in term of other currencies$ 3hat is a Foreign Exchange 1ransaction 4 Any financial transaction that involves more than one currency is a foreign exchange transaction$ 5ost important characteristic of a foreign exchange transaction is that it involves Foreign Exchange ,is+$ 3hat is Foreign Exchange 4 In narrow terms, Forex simply means foreign currency or money other than the domestic currency or money In Broader Terms, Forex Means Study of all the currencies of the different countries How they are exchanged or traded with each other Exchange rates and how they are set The Exchange markets The Participants Foreign Exchange 5ar+et63orld 7iew Globally, operations in the foreign exchange market started in a ma or way after the breakdown of the *retton 3oods system in !# , which also marked the beginning of floating exchange rate regimes in se!eral countries" #!er the years, the foreign exchange market has emerged as the largest market in the world" The decade of the $%%&s witnessed a perceptible policy shift in many emerging markets towards reorientation of their financial markets in terms of new products and instruments, de!elopment of institutional and market infrastructure and realignment of regulatory structure consistent with the liberalised operational framework" Foreign Exchange 5ar+et in 'ndia 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 ris+ transfer" The origin of the foreign exchange market in 'ndia could be traced to the year !#) when banks in 'ndia were permitted to undertake intra(day trade in foreign exchange" Howe!er, it was in the !!8s that the 'ndian foreign exchange market witnessed far reaching changes along with the shifts in the currency regime in 'ndia"

 F$E$9$A$' Foreign Exchange 9ealer:s Association of 'ndia )*E+,'- was set up in $%./ as an ,ssociation of banks dealing in foreign exchange in 'ndia )typically called ,uthori0ed +ealers ( ,+s- as a self regulatory body and is incorporated under Section 1. of The 2ompanies ,ct, $%.3" 't4s ma or acti!ities include framing of rules go!erning the conduct of inter(bank foreign exchange business among banks !is(5(!is public and liaison with 67' for reforms and de!elopment of *orex market" Functions of F$E$9$A$'
8 8 8 8 8 8 8 8 Guidelines and rules for the forex business Training of bank personnel in the areas of *orex business ,ccreditation of brokers ,d!ising 9 ,ssisting member banks in settling issues, matters in their dealings 6epresent member banks on Go!t, 6"7"'" and other bodies ,nnouncement of daily and periodical rates to member banks Prescribing margin for calculating exchange rates for !arious merchant transactions *ormulating code of conduct for dealers working in banks exchange brokers for dealing between each other

5embers of F$E$9$A$'$ 8 Public and pri!ate sector banks 8 *oreign banks 8 2o(operati!e banks 8 *inancial institutions such as E:'; bank, '"+"7"'",'"*"2"'" and S"'"+"7"'" and others such as Thomas 2ook )'- <td" 8 ,s on May 2008 *"E"+","'" has 89 members

Forex 5ar+et 6 Features 8 The ;arket Has =o Physical Presence" 8 't 's The <argest ;arket #n The Planet > Earth ?" 8 't 's ;ostly Speculati!e 'n =ature" 8 't 's , 1@ Hour ;arket" Some =ew Aork banks maintain 1 shifts )one arri!ing at office at B am when <ondon and *rankfurt are open-" <arge =ew Aork banks also ha!e branches in Tokyo, *rankfurt, and <ondon" Thus, they are in contact with all financial centers 1@ hours" +aily Turn #!er 1"C. To B"&& Trillion +ollar Per +ay Forex 5ar+et 6 Features 't 's , ;arket 2onnected 7y ,d!anced 2ommunication 2hannels <ike S"D"'"*"T" 't 's ,n Extremely ,cti!e ,nd ,lso ,n Enpredictable ;arket" The ;arket 's Truly Global ,s Trades Take Place ,cross 2ontinents" 8 ;ost +eals ,re #n Spot 7asis" 8 The ;arket 's +eep, <iFuid ,nd Efficient" 8 +eals ,re Screen 7ased" 8 ;arket 's Golatile 7ecause #f *loating =ature #f Exchange 6ates Foreign Exchange 5ar+et Interbank Market-Whole sale Market 2entral 7anks, 2ommercial 7anks, *inancial 'nstitutions H 2orporate )Enion StatesThe ,!erage <ot Si0e ( ES+ $ ( . ;n 'ndian <ot Si0e ( ES+ &"1. $"& ;n Retail Market Tourists 'ndi!idual needs *orex in the form of T2, +rafts 'mporter Exporters The amount is small in this market