FOREIGN EXCHANGE & INTERNATIONAL FINANCIAL MARKET GROUP 3 :  Ni Putu Lia Cahya P ( )  Mita Dwi P( ) UNIVERSITAS BHAYANGKARA SURABAYA FAKULTAS EKONOMI FOREIGN EXCHANGE & INTERNATIONAL FINANCIAL MARKET GROUP 3 :  Ni Putu Lia Cahya P ( )  Mita Dwi P( ) UNIVERSITAS BHAYANGKARA SURABAYA FAKULTAS EKONOMI

The foreign exchange market is a form of exchange for the global decentralized trading of international currencies. The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in the United States to import goods from the European Union member states especially Eurozone members and pay Euros, even though its income is in United States dollars.

 The foreign exchange market allows currencies to be exchanged in order to facilitate international trade or financial transactions.

 Market size and liquidity The foreign exchange market is the most liquid financial market in the world. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. The average daily turnover in the global foreign exchange and related markets is continuously growing.  Market participants Unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the interbank market, which is made up of the largest commercial banks and securities dealers.

 Commercial companies An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates.  Central banks National central banks play an important role in the foreign exchange markets.  Foreign exchange fixing Foreign exchange fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that central banks use the fixing time and exchange rate to evaluate behavior of their currency. Fixing exchange rates reflects the real value of equilibrium in the market. Banks, dealers and traders use fixing rates as a trend indicator.  Commercial companies An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates.  Central banks National central banks play an important role in the foreign exchange markets.  Foreign exchange fixing Foreign exchange fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that central banks use the fixing time and exchange rate to evaluate behavior of their currency. Fixing exchange rates reflects the real value of equilibrium in the market. Banks, dealers and traders use fixing rates as a trend indicator.

 The markets for real or financial assets are prevented from complete integration by barriers such as tax differentials, tariffs, quotas, labor immobility, communication costs, cultural differences, and financial reporting differences.  Yet, these barriers can also create unique opportunities for specific geographic markets that will attract foreign investors.  Investors invest in foreign markets:  to take advantage of favorable economic conditions;  when they expect foreign currencies to appreciate against their own and,  to reap the benefits of international diversification.

 Creditors provide credit in foreign markets:  to capitalize on higher foreign interest rates;  when they expect foreign currencies to appreciate against their own; and  to reap the benefits of international diversification.  Borrowers borrow in foreign markets:  to capitalize on lower foreign interest rates; and  when they expect foreign currencies to depreciate against their own.

The prices of tradable goods, when expressed in a common currency, will tend to equalize across countries as a result of exchange rate changes Occurs because process of buying goods in a cheap market and reselling them in expensive market affects demand for (and price of) the foreign currency and the market price of the good in the two product markets in question

The prices these Mexican shoppers pay for foreign-made goods are affected by fluctuations in the value of the peso in the foreign-exchange market

Definisi financial market A financial market is a market in which people and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. In finance, financial markets facilitate: The raising of capital (in the capital markets) The transfer of risk (in the derivatives markets) Price discovery Global transactions with integration of financial markets The transfer of liquidity (in the money markets) International trade (in the currency markets)

A currency futures contract specifies a standard volume of a particular currency to be exchanged on a specific settlement date. Unlike forward contracts however, futures contracts are sold on exchanges. Currency options contracts give the right to buy or sell a specific currency at a specific price within a specific period of time. They are sold on exchanges too.

Functions of Financial Markets Intermediary Functions: The intermediary functions of a financial markets include the following: Transfer of Resources Enhancing income Productive usage Capital Formation Price determination Sale Mechanism Information

Constituents of Financial Market 1. Based on market levels  Primary market: Primary market is a market for new issues or new financial claims. Hence it’s also called new issue market.  Secondary market: It’s a market for secondary sale of securities. 2. Based on security types  Money market: Money market is a market for dealing with financial assets and securities which have a maturity period of up to one year.  Capital market: A capital market is a market for financial assets which have a long or indefinite maturity.

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