Forex

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Forex News  Aug 20  Comment 
Monetary policy minutes of the latest Bank of England meeting revealed that two policy makers were in favor of raising interest rates. This caused the Great Britain pound to gain against its major counterparts.(...)Read the rest of BoE...
Mondo Visione  Aug 20  Comment 
On 15 July 2014, the Financial Stability Board (FSB) published its Foreign Exchange Benchmarks Consultative Report. Interested parties were invited to provide written comments by 12 August 2014. These comments are available below. The FSB...
The Hindu Business Line  Aug 20  Comment 
Technical forex report for Aug 20, 2014 by Veracity Financial Services
DailyFinance  Aug 20  Comment 
EDMONTON, ALBERTA -- (Marketwired) -- 08/19/14 -- FIRMA Foreign Exchange was named the winner of a Silver Stevie® Award in the Company of the Year - Financial Services category in The 11th Annual International Business Awards. The International...
DailyFinance  Aug 19  Comment 
EDMONTON, ALBERTA -- (Marketwired) -- 08/19/14 -- Editors Note: There is a photo associated with this Press Release FIRMA Foreign Exchange Corporation recently donated $15,000 to the Bissell Centre. The Bissell Centre is an organization aimed...
DailyFinance  Aug 19  Comment 
EDMONTON, ALBERTA -- (Marketwired) -- 08/19/14 -- FIRMA Foreign Exchange was named the winner of a Silver Stevie® Award in the Company of the Year - Financial Services category in The 11th Annual International Business Awards. The International...
Forex News  Aug 19  Comment 
The Swiss franc slumped along with the euro versus the US dollar today. The Swissie rose against the shared 18-nation currency itself but is slowly losing gains right now.(...)Read the rest of Swissie Drops vs. Dollar, Gains vs. Euro (71...
Forbes  Aug 19  Comment 
The pound slumped to a four-month low against the U.S. dollar and the euro on Tuesday after the annual rate of inflation in the U.K. fell more than expected, making it less likely the Bank of England (BoE) will hike interest rates in 2014. To...
The Times of India  Aug 19  Comment 
Talks of continued capital inflows also helped the rupee gain after four days of holidays but a strong dollar overseas restricted the rise to some extent, a forex dealer said.




 
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Overview

Forex (FX) is short for foreign exchange and refers to the trading of one currency for another. Unlike stocks or futures, currency trading is an over-the-counter market with no central exchange.

Currencies typically trade in pairs such as the EUR/USD or USD/JPY. Currencies common to Forex tend to be the most liquid currencies such as the U.S. Dollar (USD), Japanese Yen (JPY), Euro (EUR), British Pound (GBP), Swiss Franc (CHF), Canadian Dollar (CAD), and Australian Dollar (AUD).

FOREX[1] is the world's most traded market with an average daily turnover of USD $3.2 trillion[2].

Trades occur 24 hours a day, starting Monday morning in the Asia-Pacific region and ending Friday evening in North America.

Common FX Practices

Corporate FX Programs

Many corporations who receive a significant portion of their revenue from overseas (overseas refers to any sites outside of the chartering country - "headquarters") may wish to participate in FX Hedging. This is primarily because currency volatility can majorly effect a company's stated income. A long-winded example is below.

Say Google receives more than 50% of its revenue from outside the United States. This creates a situation in which the relative strength of the U.S. Dollar (USD) can impact its financials. If the Euro (EUR) strengthens against the dollar, it has a net positive impact on Google's income statement. If EUR/USD decreases, meaning more USD can be bought with 1 EUR, then when the company calculates the value of its EUR-denominated revenue, it will see a higher than average USD amount. Forex

Retail FX

In the last several years, the Retail FX market has opened up substantially with the spread of the internet and online trading. This segment is said to occupy about 4% of all forex transactions and is growing rapidly. One of the main reasons for this phenomenon is the simplified trading platforms like TradeStation that were recently developed by innovative internet brokers, aiming to educate the lay person and help get into this lucrative market.

Example with Fake Numbers and no Transaction Costs

Let's say, for ease of demonstration, that 1 EUR = 2 USD, or that 1 Euro can purchase 2 U.S. Dollars (this is not the case, but it's easy math). Furthermore, we can claim that Google makes 1 million Euros in December 2008 in France. If Google recognizes that revenue in USD, we'd say that Google made 2 million dollars that month (from France). Suppose, however, that the Dollar strengthens against the Euro, and instead we get 1 EUR = 1.5 USD (USD appreciates, which means that 1 Euro now buys less than before). This would instead result in 1.5 million dollars for December, instead of the previous 2 million.

On your own, try seeing what would happen if the USD weakens against the Euro (1 EUR = 3 USD). This volatility is something that most companies desperately seek to avoid. One can probably see already, the more money at risk, the greater the trading activity. Vis-à-vis, the more currencies that impact revenue, the greater the trading activity. As a result, these companies engage in all sorts of Hedging practices, including using currency swaps and Derivatives (Options, Futures, and forwards), to limit their exposure to currency movement, especially for the primary currencies as listed above.

Example Currency Pairs

U.S. Dollars to Euros





Euros to U.S. Dollars



U.S. Dollars to Canadian Dollars



Canadian Dollars to U.S. Dollars



U.S. Dollars to Japanese Yen



References

  1. FOREX
  2. Forex 101
  3.   WHAT IS FOREX
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