Features:- •Market where foreign currencies are traded
¨Round the clock market
¨Global market
¨Large volume of transactions
Participants:- ¨Individuals: tourists, migrants
¨Firms: importers and exporters
¨Banks: short position, long position, square position
¨Governments/ monetary authorities: market intervention
¨International agencies: lending
¨Two tier market:
–First tier: ultimate customer and banker
–Second tier: between banks
Classification of participants:-
–Non-banking entitities: business transactions and hedging
¨Banks: foreign exchange dealers
¨Arbitrageurs: profit seeking from variations in rates in different markets
¨Speculators: profit seeking from movements in exchange rates
Types of markets:-
¨Spot market
¨Forward market
¨Derivatives markets: currency futures and options
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