The Foreign Exchange Market and its Impact on Investors and Company's Price

Dissertation

Table of Contents
Topic:...............................................................................................................................................1
Chapter 1: Introduction....................................................................................................................1
Overview of research...................................................................................................................1
Rationale of research...................................................................................................................1
Purpose of research......................................................................................................................1
Research aim and objectives........................................................................................................1
Chapter 2: Literature Review...........................................................................................................2
Literature Review........................................................................................................................2
Thematic Analysis.......................................................................................................................2
Conclusion...................................................................................................................................2
Chapter 3: Research Methodology...................................................................................................3
Research methods........................................................................................................................3
Research approaches....................................................................................................................3
Research philosophy....................................................................................................................3
Research design...........................................................................................................................3
Data collection methods..............................................................................................................3
Data analysis techniques..............................................................................................................3
Research ethics............................................................................................................................3
Limitation of research..................................................................................................................3
Chapter: 4 Data analysis and Findings.............................................................................................4
Chapter 5: Discussion......................................................................................................................5
Chapter 6: Conclusion......................................................................................................................6
REFERENCES................................................................................................................................7

Topic:
Chapter 1: Introduction
Overview of research
The whole project report is based on the topic “The foreign exchange market” and its impact on
investors and company’s price. According to Baillie and McMahon, 1990; the foreign exchange
market is the market for the trading (selling) of the world's currencies, which is a decentralized,
round-the-clock, over-the-counter trading. It is much newer than other financial markets and
began in the seventies in the last century. Nevertheless, it is the largest market in terms of total
business. There is a daily equivalent of about US $ 4 trillion in foreign currencies. It is the most
stable market as compared to other markets. The foreign exchange market, also known as the
"foreign exchange" or "FX" market, is a global decentralized market where currencies are traded.
It is a centralized market where transactions are conducted. Rather, foreign exchange trading
over-the-counter (OTC) is carried out electronically, meaning that all trading transactions are
performed via computers by traders and other market participants worldwide.
The history of the foreign exchange market is marked by two special events which left a deep
impression on its formation and development. These two events are constructed of the historical
gold standard system and the Britton Woods system. According to Melvin and Taylor, 2009; the
main idea behind the formation of the Gold Standard System in 1875 was the guarantee of
governments that a currency would be supported by gold. All major economic countries became
the currency exchange rates for these terms as defined in the amount of currency for one ounce
of gold and the value of their currencies in proportion to these amounts. It marked the first
standardized instrument of currency exchange in history. However, World War I caused a
breakdown of the gold standard system as countries sought to pursue economic policies, which
would not be constrained by the stable exchange rate system of the gold standard.
Rationale of research
There are plenty of advertisements in the internet about ways to collect profit on the foreign
exchange market, however, one has to take into account that the job is not a full-time occupation
and requires no steady salary. Only you can determine your salary depends on your loss or profit.
Capital and risk in this business is about the inevitable start.
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Trading on foreign exchange has many marginal features: no career ladder, no very large starting
capital, operations are similar and do not require continuing education, potential yield rate or loss
risk is high. These characteristic features make marginal trading attractive for beginning stock
market activity with a small start-up budget.
Purpose of research
The main purpose of this research is to make this complex topic simpler through studying
various theories and methods of foreign exchange market. Additional to this; project report also
has a purpose to find out alternatives which can compensate the loss from foreign exchange
market and to understand difference concepts like hedging, bidding, opt out, hold and over the
counter trade.
Research aim and objectives
Aim: “To identify the factors which impact the market efficiency of foreign exchange market.”
Objectives:
 To determine the effect of exchange market on national and local economy
 To identify factors which highly affect exchange market efficiency
 To ascertain the interrelation between various foreign exchange market rate
 To study the effect of fluctuations of exchange rate on trading decisions
Significance of the research
The finding of this research report will help investors to minimize or hedge their risks and
receive good returns. The methods explained in this report will let beginners having good
knowledge of forex market and to get familiar with various terminologies used in brief report by
the companies. It will also support those people who don’t have enough knowledge about how
security and foreign exchange market works.
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Chapter 2: Literature Review
Literature Review
The starting segment (Chapter I) recognized different ideas of the outside trade advertise. The
reason for a writing audit area is to look at the significant purposes of current data the methods
used to characterize the possibility of trading fates on monetary standards (fates). It is a section
described by a consistent progression of thoughts to accomplish the goals of the investigation. A
particular/arbitrary writing audit of applicable research articles was led.
One of the measurements proposes the danger of debacle happening because of vulnerability
in gracefully and interest for various monetary standards. Another kind of outside trade showcase
has discovered its way into discovering what the pointers of digital money use and gauge are at
future agreement costs. After conversation some important articles are talked about above
measurements.
Thematic Analysis
The forex market was previously largely dominated by banks and institutional investors, but
now the situation has changed as online brokerages and readily available margin trading
accounts have made it comfortable and accessible to everyone, provided that they have a good
interest. This is the reason why individual investors also need to understand in detail the benefits,
risks and most effective ways of investing in foreign currency so that you can also avoid eating
professional cake.
Analysis of different theories identified three themes; 1) Understanding the concept of
derivative market; 2) Widening the scope of forex market from mare investing purpose; 3)
Finding the ways of hedging.
Foreign or Forex or FX exchange market), is defined as a mechanism for trading of currency
of one specific country with the valid money of another. Indeed, FX markets are combined up
with several separate markets, as trade among particular currencies like the euro and the US
currency that each includes a market exchange. This market is the initial and oldest capital
markets, which were the foundation upon which remainder of the financial system operates and
is exchanged: including external liquidity, ideally relative equilibrium (Hakkio, 2017). A Forex
market is a 24x7 over-the-counter (OTC) and broker's sector, indicating trades between two
parties are done via communications technology. However, the money markets are split into cash
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markets that are for 2 day settlements as well as the markets for swaps, forward, interbank
options and futures. The foreign exchange market controls London, New York and Tokyo. The
financial markets are the biggest and most competitive of all the capital markets; the Bank for
International Settlements (BIS) semi-annual estimates brought in trillions of dollars regular
global trading on the foreign exchange markets. It is disturbing to think that in the early twenty-
first century the deposit insurance of an annual global economy is exchanged on the Forex
markets in almost under each five days, while the extensive use of currency fluctuations and
transfers in and out of vehicle exchange rates such as a more flexible trading medium which
implies that these indicators of financial operation can be underestimated. The initial demand for
currency exchange originated from the money market needs of the entrepreneurs for settling
trade. Nonetheless, now foreign currency is also acquired and marketed for managing risk
(hedging), arbitration, and financial income and foreign direct investment specifications. Thus,
financial flows serve as the primary determining factor of exchange rates, instead of trade; for
instance, exchange rate changes serve as an attraction for supply-driven resources. The financial
markets are therefore also considered to be a constant and continuing indicator on governmental
policy decisions as well as the country's economic status and situation; if the investors disagree,
they can rule with their main currency and withdraw money from the market.
In the opinion of Mitra, R., 2017, discussions on the real and future flexibility of capital
continue in controversy, though, as do those on which exchange rate fluctuations should better be
described as logical, "over-shooting," or optimistically unreasonable. A traditional challenge of
flexibility is the highly asymmetrical relation among the foreign exchange markets with national
parliaments. The Mundell-Fleming model points forth the "trilemma" of financial-policy
alternatives open to policymakers. The model suggests that government agencies must select two
of the preceding three political goals:
 National monetary independence (the power to control supply of money as well as
increase interest rates and thus control development);
 Exchange rate stabilization (the power to decrease instability across a fixed, rectified, or
managed system)
 Capital freedom of movement (making any investment movement i.e. in or out of specific
nation).
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According to Catalán-Herrera, (2016) traditionally, numerous international financial systems
have highlighted diverse policy combinations. The fractional reserve method, for example, it has
stressed the very first two at the detriment of free flow of money. The system's failure damaged
financial market equilibrium and consistency. The ensuing large swings suggested an increase in
the likelihood in currency fluctuations (also in incentives for profit). Government agencies are
currently facing various threats that are frequently wrapped up in the term modernization or
capital mobility: transitioning to international currency fluctuations, domestic capital market
democratization, and technical and financial advancement. Floating currency rates are standard
in the modern global currency system. However, multiple policymakers adopt a number of
alternate strategy combinations or seek to reduce volatility in the exchange rates through diverse
policies. For instance, the United States showed a personal choice for ad hoc global cooperation
to take action and maintain the dollar's amount, like the Plaza Agreement in 1985 as well as the
Louvre Accord in 1987. Europe has adjusted by seeking a national currency union focused on the
need to reduce exchanged rate risk, while other developed countries with weaker populations
have taken the 'dollarization' path. The foreign governance system is a dynamic and highly
complex body, with private companies performing a significant role; note the tremendous role
that private organizations perform in controlling the markets, including such mortgage lenders.
Banks still constitute the major industry actors and are regulated by the regional monetary
regulators. Such national financial regulators obey the international recommendations set down
by the Financial Oversight Committee. Financial stability provisions are intended to shield the
principal from credit risk, market risk including risk of harm of settlement. Crucially, risk control
has been to a large degree a matter for internal planning and tracking, especially among the
leading multinational banks.
In the perspective of Melvin and Prins, (2015), spot market applies to the specific sector in
which the refunds and transactions are generated. In terms of strategy, settlement of the money
transfer is allowed for a period of two working days. Spot marketplace is of a regular personality
and trades only in foreign currency current operations (not in prospective transactions). The
exchange rate that is prevalent on the spot area is considered the spot currency exchange as well
as exchange rate. The word 'spot' is a little confusing which could simply mean a transaction
that is done ‘at the appropriate spot' (i.e., immediately). A two day allowance is permitted,
nevertheless, because it takes two days to clean up purchases received by cheques. Forward-
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