Foreign Exchange Market Analysis: Investor Perspectives Report

This report provides a comprehensive analysis of the foreign exchange market, covering its functions, trading time frames, and the theories of currency exchange rates. It delves into factors affecting the market, such as political stability and economic performance, while also addressing the risks and challenges associated with foreign trading, including exchange rate risk and interest rate risk. The report further explores various trading strategies like scalping, day trading, swing trading, and position trading, alongside the benefits and risks of 24-hour Forex trading. It examines risk reduction methods, questions the legitimacy of Forex, and discusses technical indicators and fundamental analysis. Overall, the report offers a detailed overview of the Forex market, providing valuable insights for investors and traders.

0ANALYSIS ON FOREIGN EXCHANGE MARKET
ANALYSIS ON FOREIGN EXCHANGE MARKET
Name of Student
Name of University
Author’s Note

1ANALYSIS ON FOREIGN EXCHANGE MARKET
TABLE OF CONTENTS
FUNCTIONS OF FOREIGN EXCHANGE MARKET:................................................................4
Transfer Function:.......................................................................................................................5
Credit Function:...........................................................................................................................5
Hedging Function:.......................................................................................................................5
TRADING TIME FRAME:.............................................................................................................6
Scalping:......................................................................................................................................6
Day Trading:................................................................................................................................7
Swing Trading:............................................................................................................................7
Position Trading:.........................................................................................................................8
THEORIES OF CURRENCY EXCHANGE RATE:......................................................................8
Interest Rate Parity (IRP):...........................................................................................................8
Balance of Payments:................................................................................................................10
FACTORS AFFECTING THE FOREIGN EXCHANGE MARKET:.........................................11
Political Stability:......................................................................................................................12
Differentiation in Interest Rates:...............................................................................................12
Differentiation in Interest Rate:.................................................................................................12
Current Account Deficit:...........................................................................................................13
Economic Performance:.............................................................................................................13
RISKS AND CHALLENGES IN FOREIGN TRADING:...........................................................13

2ANALYSIS ON FOREIGN EXCHANGE MARKET
Exchange Rate Risks:................................................................................................................13
Interest Rate Risk:......................................................................................................................14
Credit Risk:................................................................................................................................14
Replacement Risk:.....................................................................................................................15
Settlement Risks:.......................................................................................................................15
Country and Liquidity Risk:......................................................................................................16
Transactional Risk:....................................................................................................................16
BENEFITS OF FOREIGN EXCHANGE MARKET:..................................................................16
Flexibility in Trading:................................................................................................................17
Individual Control:.....................................................................................................................17
Practicing:..................................................................................................................................17
Transparency in Information:....................................................................................................18
Wide Options:............................................................................................................................18
Reasonable Cost:.......................................................................................................................18
Profitable Gains:........................................................................................................................19
High Liquidity:..........................................................................................................................19
No Involvement of Central Exchange:......................................................................................19
Volatility:...................................................................................................................................20
Works for 24 Hours:..................................................................................................................20
Confidence:................................................................................................................................20

3ANALYSIS ON FOREIGN EXCHANGE MARKET
INVESTMENT STRATEGIES IN FOREX:................................................................................20
Daily or Weekly Trend Following:............................................................................................20
Carry Trading:...........................................................................................................................21
Day Trading:..............................................................................................................................21
Fundamental Trading:................................................................................................................21
BENEFITS AND RISKS OF 24-HOUR FOREX TRADING:.....................................................22
REDUCTION IN RISKS IN FOREIGN EXCHANGE MARKET:.............................................23
Is FOREX IS A SCAM?................................................................................................................23
TECHNICAL INDICATOR OF FOREIGN EXCHANGE MARKET:.......................................24
Simple Moving Average:...........................................................................................................25
Exponential Moving Average:...................................................................................................25
Moving Average Convergence and Divergence:.......................................................................25
The Bollinger Band:..................................................................................................................25
FUNDAMENTAL ANALYSIS:...................................................................................................26
CHAPTER SUMMARY:..............................................................................................................27
REFRENCES:................................................................................................................................29

4ANALYSIS ON FOREIGN EXCHANGE MARKET
FUNCTIONS OF FOREIGN EXCHANGE MARKET:
According to Kindle-Berger, foreign exchange market can be termed as the place where
the transactions are conducted on the basis of real currency. Foreign exchange can be
seen as the institutional arrangement which is used for the purpose of selling or buying of
currency residing from different countries of the world (Chaboud et al 2014). The seller
selling in the foreign exchange market is termed as the exporter. The one who buys the
currency in the foreign exchange market are termed as the importer. The foreign
exchange market is the part of the money market of the world. Both importer and
exporter claims on foreign exchange market and intermediaries who are present in the
market arrange for the sell. Importer, exporter and the intermediaries altogether constitute
the foreign exchange market. Unlike share market which is present in the geographical
map foreign exchange market does not have any such existence. Moreover it does not
belong to any specific market rather foreign exchange market comes into existence
wherever there is an interchanging in the currency which resides from the different
countries of the world. The existence of foreign exchange market united in a single
market. Abundance amount of broker are present in the foreign exchange market. Banks
is the biggest dealer among all in the foreign exchange market. The responsible
institutions are the one who provides the exchange bank stated all over the world. Bill
broker are the types of dealer present in the foreign exchange market. Bill brokers bring
buyers and sellers together. Acceptance houses are also one of the important dealers in
the foreign exchange market. The central bank of the country happens to be the parts of
the foreign exchange market. The important functions of the foreign exchange market are
provided below:

5ANALYSIS ON FOREIGN EXCHANGE MARKET
The transfer of power of purchasing from one country to another country made through foreign
bills or the telegraphic bills.
Provide credit for the international trade is also the important functions on the foreign exchange
market. It also provides selling and buying spot or forward contract for foreign exchange market.
Transfer Function:
The function of the foreign exchange market includes the transmission of the currencies
to other currencies. The transfer is made by sending the purchasing power from one individual,
to another. This deportation of purchasing power is done by the variety of credit instruments
such as telegraphic transfers, bank draft and foreign bills. The payment method is very similar to
domestic clearings. The payment method consists of paying the debts on either side.
Credit Function:
The credit function of the company is an important function of the foreign exchange
market. Foreign exchange contributes credit to the national and international exporter and
importer. The foreign exchange functions of the credit function helps to encourage foreign trade.
3 months required as the maturity period.
Hedging Function:
The most important function of the foreign exchange market is the hedging function. The
hedging function includes hedging the risks which are attached with the foreign exchange
market. This is done to keep up the profit or loss factor which is associated with the transfer of
the currency in the foreign exchange market. A firm or an individual takes a huge risks if they
doing the business in the foreign exchange market. To reduce such risks the firm or an individual
opts for hedging. Hedging is made by the forward contracts. A forward contract helps to sell or

6ANALYSIS ON FOREIGN EXCHANGE MARKET
buy foreign exchange against different currency at some date in the future after fixating the price
for the future. This might proves to be two sided sword because if the price increases more than
the fixated price then the firm or the individual will face the loss in the fixated date in the future.
TRADING TIME FRAME:
The time frame is the time during which the transactions and all the transactions
in the foreign exchange are done irrespective of nations in the world. The time frame depends of
the individual or the firm who wants to enter into the foreign exchange market for trading. The
time frame takes place maybe in weekly or daily. Time frame helps the company to spread less
in a single transactions made in the foreign exchange market. The transactions in the foreign
exchange market can either be short term trading or long term trading. The time frame for the
short term trading is much less rather than the long term trading. In the case of the long term
trading, the firm or the individual need to wait patiently for a longer period of time. The bigger
account is also a criteria for the long term trading otherwise there is a chance for getting margin
calls. In the case of short term trading the interested person is mainly depends on the intra-day
trading where trading is done within the time limit of 15 minutes (Van Hout and Bingham 2014).
This will help the trader to avoid the risks which might rise up overnight. Swing trading is also
used for the sdhort term trading as the trading is done within few hours.
Scalping:
Scalping is the important strategies in the foreign exchange market of the world. This
trading strategy helps to gain the profit from little bit deviation in the proce of the currency or the
stock price. The traders who depend on the strategy differentiation have plans from 10 to few
hundreds of trading in an individual day. This strategy of scalping in the foreign exchange

7ANALYSIS ON FOREIGN EXCHANGE MARKET
market backed by the belief that the opted small moves in the stock price are easy to track and
hold and catch rather than big ones. The traders who thought of implementing this kind of
strategy mainly called as the scalpers. The small profits will turn up into a big amount. This is
also used for avoiding the loss stacked with the foreign exchange market. This done before the
market session is closed but in the case of the foreign exchange market the trasnsactions may
occur any time of the day.
Day Trading:
Day trading can be termed as the trading strategy which involves opening and closing
positions are adopted in a single day. Day trading can be acquired for the purpose of the short
term trading which intends to gain profit with a small deviation in the price of the stock or the
currency value in the foreign exchange market. The day trader mainly focuses on the price of the
asset rather than the potential associated with the currency in the long term. The day trading is
basically focuses on the technical analysis and it also wants the trader to up to date with the
foreign exchange market as it can be changed in a regular basis.
Swing Trading:
Swing trading which also accepted as the trading happens in the trading of the short term
trading. These are a kind of strategy where it buys or sell the currency under few days or few
weeks. Swing traders mainly use technical analysis as it has a very short period of time. The
traders who opts for the swing traders mainly utilizes fundamental analysis in addition to
analyzing price trends and also the pattern which is followed during the trading in the foreign
exchange market.

8ANALYSIS ON FOREIGN EXCHANGE MARKET
Position Trading:
Position trading is used for the long term trading. Position trading includes the holding of
the stock for a longer period of time. The single day deviation in the price of the currency in a
single day does not cause any change in the strategy as they does not believe in such small
change. The trader who follows the strategy of the position trading mainly depends on the
general market trends and also the historical pattern in a long term. Using both the technical and
fundamental analysis the trader needs huge time as the trader has to consider the factor for a
considerable time which takes a huge time as the data is huge and it needs to be checked
minutely. The common tool which the trader who follows the position trading needs to
concentrate on the analytical technique based on the 200 day trading.
THEORIES OF CURRENCY EXCHANGE RATE:
In accordance to the currency exchange rate there are duo types of exchange rate on
currency are as follows:
Interest Rate Parity (IRP):
Interest rate parity can be termed as the theory where the interest rate between the
countries is different which is totally similar to the differentiation in the exchange rate between
the forward exchange rate and also the spot exchange rate. Interest rate parity plays a huge role
in the case of the foreign exchange market which also connects the interest rates between the
countries, spot exchange markets, connecting interest rates and also the foreign exchange rates.
Interest rate parity can be formulated in terms of the mathematical approach. They can be
explained below:

9ANALYSIS ON FOREIGN EXCHANGE MARKET
F0=S0∗
( 1+ic
1+ib )
Where:
F0= Forward Rate
S0=Spot Rate
ic = Interest Rate of the country c
ib= Interest rate in country b
To calculate the foreign exchange rate for currency are being used. The foreign exchange rates
are the rates for a future point in time which is opposite to the spot exchange rate which also
termed as the current rates. The arbitrage is one of the important tools which are present in the
foreign exchange market and hence it is also the part of the interest rate parity. Arbitrage can be
explained in terms of the simultaneous purchase of the currency and selling of the currency from
the difference in the price. The time ranging of the forward rates constitute from a single week to
the five years and maybe beyond. In the currency trade forwards are termed as the bid ask
spread. The difference which arises from the forward rate and spot rate is termed as the swap
points. If the spot rate is positive then it is known as the forward premium and if it is negative
then it is known as the forward discount. Forward rates can be availed from the banks and the
dealers depending on the period of the rate. Interest rate parity mainly explains the hedge returns
which come after the investment made in the foreign exchange market. The return must be same
irrespective of the level of the interest rates. When there is no presence of the arbitrage and it
satisfies the use of the forward contracts which is used for reducing the risk which happens to be
attached with the foreign exchange market then the interest rate parity is known as covered

10ANALYSIS ON FOREIGN EXCHANGE MARKET
interest arte parity. On the other hand interest rate parity is a said to be uncovered as the no
arbitrage is used and there is no effect on the forward contracts which is associated with the
foreign exchange risks.
For example, American Treasury bills are providing the annual interest rate of 1.75%
while on the other hand UK is offering the interest rate of 0.50%. If any investor wants to take
any kind of advantage of the difference in the interest rate then he will transfer the certain
amount of U.S. dollar into U.K. pound to purchase Treasury bills of U.K. Then the investor has
to send the forward contract of U.S. dollar for one year.
Interest rate parity has some certain limitations. This limitation comes under the purview
of the assumptions which comes with it. For example in case of covered interest rate parity there
is an assumption of having funds with infinite number that are used for arbitrage. In the case of
the uncovered interest rate parity there cannot be any forward contracts so no-hedging available
so uncovered interest rate parity does not contain any ground.
Balance of Payments:
Balance of payments is the amount which is a sum up of all transactions made by
a country, or a government or an institution of a particular country or a company of a particular
country which competes with the other country, company or the government. The balance of
payments sometimes also considered as the balance of international payments. The transactions
which are considered as the transactions in balance of payments or balance of the international
payments contain imports and exports of goods and services and also the amount of capital. The
transactions also include transfer payments such as aid from foreign and remittances. The
balance of payments also includes the net international investment position from the transactions

11ANALYSIS ON FOREIGN EXCHANGE MARKET
which are to be considered. Both balance of payments and net international investment position
altogether taken into account as international account. The balance of payments of a country are
segregated into two accounts namely capital account and current account. Under the purview of
the balance of payments this capital account also called financial account having a small amount
of capital. This capital account financial account of the balance of payments is listed separately
in the account. The capital account also contains the transactions made in the financial
instruments and central bank reserves. On the other hand the transactions related with
investment, goods and services, current transfers and the investments made in that year are falls
under the current account part of the balance of payments. The calculations of current account
contain the national output of a country. According to the calculations of the balance of
payments the output must be null. The reason behind the null value in the balance of payments is
that credit which is going out must be compensated with the debit which comes in or vice-versa.
Here, exports are considered as the credit and import of an item is considered as the debit in an
account. If specific country cannot fund the import then the country must use pits reserve to
bring down the reserves. The above mentioned situations also named as the balance of payments
deficit. In theory the balance of payments is possible as it comes to zero but in reality due to the
problem in searching the exact data and counting the comparison between the economy and the
rest of the world will be not possible. Balance of Payments data is also an member for
calculating the national and international economic policy. The usage of the balance of payments
like payments imbalances and foreign direct investment are the data which is required for
nation’s policymakers which seek to address. On the contrary economic policies which are
targeted by the objectives affect the balance of payments. Inspire of having the nation’s balance
of payments result zero still there is a difference prevails between the countries balance of

12ANALYSIS ON FOREIGN EXCHANGE MARKET
payments because of the difference in the current account. This position is known as the balance
deficit in current account.
FACTORS AFFECTING THE FOREIGN EXCHANGE MARKET:
This report examines the factors which affects the foreign exchange market. This factors
of foreign exchange market influences the variations which is associated with the variations and
fluctuations of the exchange rate. The factors which affect the foreign exchange market are as
follows:
Political Stability:
The currency power or strength can be hugely pretentious by the economical state and
political performance of the country. A country that does not possess any kind of political risk
likely to have more foreign investors. This political turmoil will help the investors to move all
the investment from that country to another (Rajhans and Jain 2015). The country having high
investment mostly the foreign investment most likely the value of the currency will go up more.
A country whoc have good political condition as well as good economic condition able to
increase the value its currency. Overall the performance of the country will also shoot up high
because of having good political condition.
Differentiation in Interest Rates:
The country having high volatility of inflation leads to change in currency exchange
rates. A country having low inflation rates will have less fluctuation in inflation rates will have
high currency exchange rates. A country having low inflation rates will have minimal increase in
the price of goods and services in the country. So a country that have low inflation rate

13ANALYSIS ON FOREIGN EXCHANGE MARKET
consistently for few years will see an increase in the currency value while a country having
inflation rate will see a decrease in the currency value in recent year.
Differentiation in Interest Rate:
If there is a change in a currency value and dollar exchange rate. It is seen that the foreign
exchange rate, inflation irate and interest rate correlated. Increases in the interest rates leads to
directly increase in the currency’s exchange rate. The upsurge in the interest rates leads to attract
more lenders from the company. These will attract more foreign investment from outside and
hence there is an upsurge in the currency exchange rates of the country.
Current Account Deficit:
The current account of a specific country will have balance of trade and the earnings on
the foreign investment. The current account of the country has total number of transactions made
in imports, exports, debt, etc. The deficits of a country shows in current account which happens
when the currency is spend more on importing the goods and services which is more than the
export amount. Balance of payments which fluctuates exchange rates of the country.
Economic Performance:
The economic concert of the country greatly relies on the import and export of the goods
and service of a country. If the country having more exports of goods and decrease in the import
then the company will enjoy a high level of economic condition. On the other hand the country
having less export and more import then the country will face inflation and hence the country
will attract less foreign investment which will result in the decrease in the currency rate in the
foreign exchange market of the world.

14ANALYSIS ON FOREIGN EXCHANGE MARKET
RISKS AND CHALLENGES IN FOREIGN TRADING:
In spite of having a complicated algorithm computer system for interchange in foreign
exchange market there are still prevails some risks (Rambaldi, Pennesi and Lillo 2015). The risks
which are associated with the foreign exchange market are as follows:
Exchange Rate Risks:
Exchange rate risks which is caused by the changes which are the value in the currency
exchange. This exchange rate depends on many factors among which the prominent one is the
worldwide shift in the demand and supply of the world. The exchange rate will totally depend on
the market’s perception depending on which the currency will move. This happens because the
foreign exchange market is unregulated and there are no imposition of taxation has been
provided in the foreign exchange market. The foreign exchange market moves following the
fundamentals and technical analysis. To insure from the exchange rate risks the investor of the
foreign exchange market more often implement the strategy of cutting loss and riding profitable
positions which help them to manage the losses within the stipulated time limits. There is also
strategy which helps the investors to move forward for reward ratios which helps control the
exchange rate risk.
Interest Rate Risk:
Interest rate risk refers to the risks which caused during the fluctuations in the forward
spreads along with the forward amount mismatches and also the maturity gap which are present
in the transactions in the foreign exchange market. This risks mainly prevails during the currency
swaps, futures, options and also the forward outright. In response of the minimizes the risks it is
seen that the investors of the foreign exchange market leads to set a limit on the size persistent to
the mismatches. A common approach is separated from the mismatches on the basis of maturity

15ANALYSIS ON FOREIGN EXCHANGE MARKET
dates. Tio safeguard from such transactions the computerized system is used and hence
calculation of the positions for all the dates and the delivery. To avoid such interest rate
continuous analysis of interest rate should be provided which will forecast the environment and
also the outstanding gap between them.
Credit Risk:
Credit risk is one of the major risk positions which prevail in the foreign exchange
market. In the foreign exchange market credit risk refers to the possibility that the currency
position may not repay again which may rise with or without the consent of the counterparty.
Corporations and banks are the ones who are exposed to the credit risk. As for the individual
trader credit risk is considered as very low. The countries which are associated with the G-7 are
also freed themselves from the credit risk. There are presence of many institutions of different
countries who tried to safeguard the traders of the foreign exchange market from the credit risks
problem.
Replacement Risk:
Replacement risks mainly occurs when the counter parties of a failed banks or any
foreign exchange market brokers entered into contract and the fund is failed due to the banks. In
this type of risk law and regulation enter and bring justice to the victim and advocate the verdict
for such problems.
Settlement Risks:
This risk is most likely to happen in the foreign exchange market. In foreign exchange
market settlement risks mostly because of the difference time zones on different countries around
the world. Moreover there is a difference in trade price of currency in different countries around

16ANALYSIS ON FOREIGN EXCHANGE MARKET
the world. To counter with the credit risk of the country the trader must consider the market
value of the currency portfolio and also the potential exposures of the portfolios of the currency
in the foreign exchange market. The potential exposers are measured by the probability method.
The computerized which is present in the foreign exchange market helps to assess the credit risk
and formulate the policies in the market. So the credit riosks can easily be monitored. The credit
is automatically adjusted for the traders darting the trading session of the traders.
Country and Liquidity Risk:
The liquidity of the foreign exchange market is much more still some risks prevail. There
are many nations who put certain restrictions on the foreign exchange trading like imposing of
trading limits on the trading during the trading sessions. There is a risk which associated with the
foreign exchange rates as the rates vary from country to country. The foreign exchange rates
fixed by the central bank of the country. It also fixed of the volume which must be traded in a
day or in a certain period of time. This cause the problem for the trader trading in the foreign
exchange market as the liquidation of the currency become complicated and time taken. As the
rates fixed by the central bank of the country or the government of the country leads to the
restriction and also the hindrance in the business of trading in the foreign exchange market.
There are trading happens in the non-FOREX market of a country so they are prone to the risks
associated with the foreign exchange market. In the case of the implementation of the stop loss
or limit orders the order may not be executable.
Transactional Risk:
There are risks which may arise due to the communication problem or maybe the
handling. This type of miscommunication may give rise to the transactional risks and the traders

17ANALYSIS ON FOREIGN EXCHANGE MARKET
have to face the unforeseen risks. This happens when the trader dealing with counter party
institution.
BENEFITS OF FOREIGN EXCHANGE MARKET:
There are many advantages which is associated with the foreign exchange market for the
traders to trade. They are as follows:
Flexibility in Trading:
The foreign exchange market provides lots of flexibility to the traders and the business
for the trading of goods and services. Moreover there are no such restrictions in trading for how
much currency to be used for trading in the foreign exchange market. There are no such rules and
regulations associated for the traders in the trading for the foreign exchange market. The trader
also has the flexibility of working as per there suitable time period. It happens because the
foreign exchange market provides 24x7 timing which is unlike the stock exchange market.
Businessman or the working class who do the job in some other company can also do trading as
there are flexibility of time period.
Individual Control:
Foreign exchange market provides great facility to the individuals of the foreign
exchange market because the individual has complete control over making trade. There is no
such statutory pressure for the foreign exchange market trader who is the individual and working
in any kind of force. The individual is in the foreign exchange trading always having the final
decision regarding the trading and doing business in the foreign exchange market. Moreover it
depends on the individual that how much risks the individual risks need to take by the tarder.

18ANALYSIS ON FOREIGN EXCHANGE MARKET
There are no such rule which forces the individual to take the certain amount of risks while
creating the trade.
Practicing:
When a new individual entering the foreign exchange market for trading they are
provided with the demo account where they can practice the live trading which help them to
understand the market and also understand the market and learn the ways to gain profit from the
market. There is no such pressure provided and hence the individual comes know the ways and
also the reason for doing the business in the foreign exchange market. These become beneficial
to the trader because it helps to create a new skills which help the trader or the individual who is
trading to gain the profit.
Transparency in Information:
The foreign exchange market is very big and operates all the time. The foreign exchange
market provides different information regarding the rate and also the currency forecast. The
information which is available in the foreign exchange market is transferred at very short time
period irrespective of the time and place of the country.
Wide Options:
The foreign exchange market provides various options to its traders and business man
and also the importer and exporter of the company. This option comes as currencies which come
in pairs. Starting from spot option to future contract agreement, foreign exchange market
provides different choices to its employees. There are availability of other options to its investors
and the traders after considering the budget and the risk factors associated with the foreign
exchange market.

19ANALYSIS ON FOREIGN EXCHANGE MARKET
Reasonable Cost:
Traders in the foreign exchange market enjoy a sensible cost while investing the foreign
exchange compared to the stock exchange market. If it calculated in the percentage basis then the
Foreign exchange market claims to have much lower percentage than the other exchange market
present in the world. It happens because there is a no middle institution to take the percentage of
amount for the transaction fee or the service fee and hence the dealers are involved directly and
also the brokerage is much lower than the other exchanges. The brokers of the foreign exchange
market take care of the risk by themselves.
Profitable Gains:
It is observed that the foreign exchange market provides maximum leverage to the
investors in comparison to all the financial market in the world. This kind of facility helps to
provide a large amount of leverage which helps the investors to get 20 to 30 times more than the
other exchange market. In spite of the less operation in contrast to the other financial market in
the world the foreign exchange market provides high percentage of profit or loss to the investors.
High Liquidity:
In contrast to the other financial market in the world foreign exchange market sees the
participants of the highest number. This made the foreign exchange market popular but it also
helps the market to be more liquid able because it attracts the large players which helps to take
the large transactions to be considered. This also helps to eliminate the price manipulation and
hence the price does not deviate much. These also promote efficient pricing.

20ANALYSIS ON FOREIGN EXCHANGE MARKET
No Involvement of Central Exchange:
There is no involvement of the central exchange in the everyday transaction of the
foreign exchange market. In a very rare case they involve. As there is no involvement of the
central exchange so the investors can try to do the business without any tension of price
manipulation. Thus, the market does not change in contrast to the stock exchange market.
Volatility:
In the foreign exchange market the traders can easily transfer from one currency to
another currency if the trader finds profit in other investment. There prevails a high risk factor in
such capital driven market but the volatility provides the opportunity to fetch higher profit for the
investors.
Works for 24 Hours:
The biggest advantage of the foreign exchange market is that the market is opened 24x7
which helps the traders to fetch profit and invest time at time of the day. These all day and night
long market provides great feasibility for the investors as they can invest and enter into any kind
of contract at any time. As for the individual, he can update about the market condition at any
time of a day.
Confidence:
After fetching profit the investors sees an increase in the confidence level which helps to
increase the traffic and hence more huge investors involve in the currency trade and the chances
of having high profit also increases a lot.

21ANALYSIS ON FOREIGN EXCHANGE MARKET
INVESTMENT STRATEGIES IN FOREX:
According to the goal of the investors there are the presences of the strategies which are
present for gaining profit from the foreign exchange market. Some of them are provided below:
Daily or Weekly Trend Following:
The strategy which is followed by the short term traders in the foreign exchange market
are opt for the daily or weekly trend following. In this method the investors are interested in the
weekly and daily charts of the foreign exchange market. If the trader finds any deviation in the
chart of the currencies which the investors are working or holding the contract enters into the
selling or buying of the currencies. These moves help the investors to gain a profit from the
currency transaction. This strategy is also fruitful for the beginner who enters into the contracts.
Carry Trading:
It is a kind of strategy where the trader buy a currency which having a high interest rates
against the currency which is having low interest rates. The trader enjoys the rollover between
the currencies. The main advantage of using such strategy is that even when the trade is not
active then also the money deposited in the account of the trader. As the trader of the foreign
exchange market are leveraged so the trader are paid on the basis of the size of the trade and not
on the capital.
Day Trading:
The foreign exchange market is active for 24 hours. Although there is a specific time for
the most active trading time period but the foreign exchange market always moving even for a
little bit. On the basis of the currency the time can be chosen for trading. The day trading strategy

22ANALYSIS ON FOREIGN EXCHANGE MARKET
rotates around the foreign exchange technical analysis which provides some advantageous points
to the system.
Fundamental Trading:
There are presences of traders who wants to trade the currency in the foreign exchange
market who observe the market for a considerable period of time and then enter into the contract.
It happens because the trader is the mostly cautious investors and they decrease the risks
associated with currency trading. The investors who follow such strategy keep updated with the
economic condition of different countries in the world. This type of strategy proves to be very
easy as it looks up how things shape up over the long period of time. The main difficult and time
taken part is the comparison of the economic condition of different countries.
BENEFITS AND RISKS OF 24-HOUR FOREX TRADING:
There are many benefits of the 24-hour trading in the foreign exchange market as the
person who are not actively depends on the foreign exchange market can also participate after
their respective job. As the foreign exchange market is international and deals with every
currency situated in the world the market needs to open for 24-hour to remove the limitation in
case of the time zone. These help the trader to get a flexible time to invest and enter into the
contract. This 24-hour trading in the foreign exchange market helps the trader to trade any kind
of currency present in the market. These also helps the market to move slowly in every time a
day and hence there can be seen a market deviation in the case of the currency. Another very
advantage of the 24-hour trading is that an individual from one country can easily enter into the
contract with another country irrespective of the time zone and difference in time. The very risk
associated with the 24-hour trading is that the foreign exchange market fluctuates a lot and hence

23ANALYSIS ON FOREIGN EXCHANGE MARKET
the market tends to move up and down. Sometimes the traders have to face some bitter
consequences for this. In foreign exchange market the trader who are doing trading tends to
leverage the risks a lot and hence the loss they has to suffer is huge in comparison to the stock
exchange market. Another issue with the foreign exchange trading is that there is no such body
or board to regulate the foreign exchange market and so there is a chance of having miss loss in
case of the transactions. As the foreign exchange market changes in the continuous basis the
trader of the market need to be updated for every second otherwise they migh miss the chance
and incur some serious loss.
REDUCTION IN RISKS IN FOREIGN EXCHANGE MARKET:
In the foreign exchange market covering the risks remains also known as the hedging. If
the trader or the individual does not opt for hedging then the trader believes that the future
movements will be according to the favor of the trader. If the investor opts for hedging then also
the economic condition cannot be changed as it is uncertain and hence there remains an
opportunity cost but still hedging is one of the important tool to reduce the risks of any
transactions associated with the foreign exchange market. There is a presence of the future
exchange contracts in the foreign exchange market which offer contracts both for buying and
selling of the currency. This safeguards the trader from the fluctuation of the price which is a
common part in the foreign exchange market. There are also presence of the future contracts
which is also considered as the financial instrument. As per the future contract the trader agrees
to enter into a contract in the future on a specific date and also at fixed rate. These safeguard the
trader from the fluctuations in the foreign exchange market. There is also the presence of the
option which also a financial instrument. Currency option provides the trader the right but no-
obligation to buy or sell the currency. It rather fixated the price at a pre-determined price which

24ANALYSIS ON FOREIGN EXCHANGE MARKET
also known as the strike price. There are presence of other financial instruments which helps the
trader or investor to decrease the risks related with the foreign exchange market.
Is FOREX IS A SCAM?
There are many brokers present in the market who conducts some unscrupulous
behaviour which leads to the scam from the investors resulting distrust on the foreign exchange
market. These are common with the rookie trader. When a novice and a newbie entered for the
trading they are mostly opt for the brokers for the interchange in the foreign exchange market.
The brokers present or handling the foreign exchange market takes the trade on the other way. It
is seen that the brokers are moving quoted rates arbitral to trigger the spot order while the broker
price has not moved to that price. In this way the broker tends to get more brokerage from the
trader. Sometimes the trader also falls under the plinth because of the behavioral trading. The
new trader has the tendency to press the button for buy and in fear of losing more the trader sell
the currency in early period. Communication is also one of the important factors which exists
between the trader and the broker in the foreign exchange market. The deviation in the
communication leads to the vague answers and misleading behaviour of the broker from the
trader. There are many ways to spot the scam which are moving in the foreign exchange market.
The scam surrounding for the payment of the system service charge is very common in the
foreign exchange market. It can be expected that the foreign exchange market is not more than
some hundred dollars. Another problem which is associated with the scam in the foreign
exchange market is the commingling of funds. It states that the records of an individual’s
investments is very tough as it is mostly the transactions is very less. Sometimes it is seen that
the brokers won’t allow the traders to withdrawal of the money and reinvest in another trade.
This is also one of the scam and the investor must save themselves from such problems.

25ANALYSIS ON FOREIGN EXCHANGE MARKET
TECHNICAL INDICATOR OF FOREIGN EXCHANGE MARKET:
There is the presence of the technical indicator of the foreign exchange market for the
traders. The trader must choose the technical indicator in accordance with the style and
psychology of the individual. The technical indicator of foreign exchange market is as follows:
Simple Moving Average:
The simple moving average can be stated as the average price for a specific time period.
It eases the price movement so that the user identifies the trend. It is a lagging indicator because
it incorporates price from the past and provides the signal after the trends begins.
Exponential Moving Average:
This foreign exchange market indicator specifies more on the present prices and also the
recent prices. This also states that the exponential moving average responds to the change more
quickly than the other indicator. It is mainly adopted by the trader who is willing to trade the
currency for a long term basis.
Moving Average Convergence and Divergence:
Moving Average Convergence and Divergence is a foreign exchange indicator is
designed to gauge the momentum. It helps to identify the trend and also measure the strength of
the trend. It is perhaps the best foreign exchange trading indicator exists.
The Bollinger Band:
Analyzing the violating trend is one of the major indicators of the foreign exchange
market. If the price goes up than the moving average and an amount is added with it a new trend
may start off. It shows the volatility of the foreign exchange market by showing the volatility of
channel of the market. In this way the trader can save themselves from the risks which are

26ANALYSIS ON FOREIGN EXCHANGE MARKET
associated with it. There are presences of the two parameters on the basis of which the volatility
can be measured. The two parameters are the days taken for moving average and also the
standard deviation that the trader wants to remove from the moving average.
FUNDAMENTAL ANALYSIS:
The safeguard from the political, social and economic condition of the countries may
affect the foreign exchange market and also the demand and supply of an asset. Analyzing the
economic condition of the country provides some integral information about the currency of a
country. The demand and supply are used as the indicator. This will help to analyses the price.
The main reason for analyzing that the currency strength can measure. The better the economy of
a country the country will attract more foreign investors and hence the balance of payments of
the country will be in a good state as the current account of the balance of payments will be high.
The currency rate of the country will rise high and hence the currency will be exchanged in the
foreign exchange market. Inflation and unemployment also the important factor which neede to
be take care for the development of the currency.
CHAPTER SUMMARY:
In this repot the first part contains the around the concept of foreign exchange market and
also it states the different function of the foreign exchange market which are transfer function,
Credit function and also the hedging function. The report also explains about the concept behind
the trading frames and also the four types of trading time frames namely scalping, day trading,
swing trading and also the position trade. The report sheds light on the currency exchange rate by
explaining the interest rate parity and also the balance of payments which are the integral part of

27ANALYSIS ON FOREIGN EXCHANGE MARKET
the foreign exchange market for currency trading. The factors which affect the foreign trade are
also provided in this report. The main factors which are discussed are political stability,
differentiation in inflation rate, differentiation in the interest rate, current account deficit and
economic performance. The next part provides detailed information regarding the risks which are
associated with the foreign exchange trading which are usually faced by the participants of the
market. The report also states about the advantages of foreign exchange trading. The rport also
suggest the effective investment strategy which is must adopted by the traders or the investors
investing in the foreign exchange market. Investments strategies which are beneficial for doing
business in the foreign exchange market are also provided. The advantages and the risks
associated with the foreign exchange market’s characteristics of 24-hour trading are also being
discussed. The strategy of the reduction in risks in foreign exchange market, scams in the foreign
exchange market and also the indicator of the foreign exchange market and also the fundamental
analysis of foreign exchange market are also provided.

28ANALYSIS ON FOREIGN EXCHANGE MARKET
REFRENCES:
Chaboud, A.P., Chiquoine, B., Hjalmarsson, E. and Vega, C., 2014. Rise of the machines:
Algorithmic trading in the foreign exchange market. The Journal of Finance, 69(5), pp.2045-
2084.
Chiang, W.C., Enke, D., Wu, T. and Wang, R., 2016. An adaptive stock index trading decision
support system. Expert Systems with Applications, 59, pp.195-207.
Crist, J., ITG Software Solutions Inc, 2017. Systems and methods for viewing and trading
futures. U.S. Patent 9,619,839.’
Ghosh, A.R., Ostry, J.D. and Chamon, M., 2016. Two targets, two instruments: Monetary and
exchange rate policies in emerging market economies. Journal of International Money and
Finance, 60, pp.172-196.
Jacque, L.L., 2014. Management of foreign exchange risk. International Accounting and
Transnational Decisions, p.361.
Jang, J.H., Lee, S.M., Kim, S.D., Gwon, O.S., Ko, E., Lee, S.M., Shin, J.W. and Lee, S.E., 2014,
November. Accelerating forex trading system through transaction log compression. In 2014
International SoC Design Conference (ISOCC) (pp. 74-75). IEEE.
Krauss, C., 2017. Statistical arbitrage pairs trading strategies: Review and outlook. Journal of
Economic Surveys, 31(2), pp.513-545.

29ANALYSIS ON FOREIGN EXCHANGE MARKET
Nassirtoussi, A.K., Aghabozorgi, S., Wah, T.Y. and Ngo, D.C.L., 2015. Text mining of news-
headlines for FOREX market prediction: A Multi-layer Dimension Reduction Algorithm with
semantics and sentiment. Expert Systems with Applications, 42(1), pp.306-324.
Nassirtoussi, A.K., Aghabozorgi, S., Wah, T.Y. and Ngo, D.C.L., 2014. Text mining for market
prediction: A systematic review. Expert Systems with Applications, 41(16), pp.7653-7670.
Osunbor, V.I. and Egwali, A.O., 2016. Development of OSEG: A FOREX Expert Advisor. The
Pacific Journal of Science and Technology, 17(2).
Ozturk, M., Toroslu, I.H. and Fidan, G., 2016. Heuristic based trading system on Forex data
using technical indicator rules. Applied Soft Computing, 43, pp.170-186.
Rajhans, R.K. and Jain, A., 2015. Volatility spillover in foreign exchange
markets. Paradigm, 19(2), pp.137-151.
Rambaldi, M., Pennesi, P. and Lillo, F., 2015. Modeling foreign exchange market activity around
macroeconomic news: Hawkes-process approach. Physical Review E, 91(1), p.012819.
Van Hout, M.C. and Bingham, T., 2014. Responsible vendors, intelligent consumers: Silk Road,
the online revolution in drug trading. International Journal of Drug Policy, 25(2), pp.183-189.