1. Foreign Exchange Management
Its not a physical place
Electronically linked through big banks, FE Brokers & dealers
Dispersed through big & small financial centers in the world leading one London, New York, Paris, Tokyo, Frankfurt

2. Structure
Retail Market: The exchange of bank notes, bank drafts, currency, ordinary and traveller’s cheque between private customers, tourists and banks takes place in the retail market.
Wholesale Market: An inter bank market where major bank trade in currencies. Small banks & Local offices have a credit line with the large bank.

3. Authorized Dealers
Any bank which has given the authority to deal in foreign exchange & the public has to conduct all their foreign exchange transactions through them.
Major centers: Mumbai, Delhi, Calcutta, Chennai, Bangalore, Kochi and Ahmadabad.
AD’s set the ground rules for fixation of commission & other charges.

4. Inter Bank Market
Direct Market: Where bank quote buying & selling prices directly to each other and all participating banks are the market makers.
Indirect Market: Where banks put orders with the broker who put them on “books” and try to match the purchases and sales orders for different currencies.

5. Global Forex Market Vs. Indian Market
5% transactions are trade based, 5% for officail transactions, long term debt & equity placement and capital flows & 90% has been for arbitrage & speculation.
Transactions are tend to be large & executed
Prices can change 20 times a minute & sometimes the dollar rate has changed upto 18,000 times a single day.

6. Terminologies
Hedgers: Who enter the forward exchange market to protect themselves against the exchange rate risk.
Arbitrageurs: Who want to make a riskless profit.
Speculators: Who want to make a profit by accepting exchange rate risk..

7. Central Bank Intervention
RBI can enter on its own account and on behalf of the government.
It does not deal directly into the foreign exchange, it does so through the authorized dealer.
It supervises, monitors and control the foreign exchange market with a view to create an active exchange market at important trading centre