Forex Exchange Market: Basic Theory

The foreign exchange market is where one currency is traded for another. Its participants include large banks, central banks, currency speculators, multinational corporations, governments, and other financial markets and institutions.

Forex, also referred to as Foreign Exchange is a worldwide trading financial market. It is considered to be the largest market in the world leading to high liquidity. Forex Trading is where trading is done between different currencies of the world against each other. It determines the value of currencies.

With the internet, you can now also participate in online trading which is flexible and allows you to trade in the comfort of your home.

 

Features of Forex Trading

• It is the most liquid and the largest financial market in the world.
• Currency trading is done over the counter, rather than being centralized like in case of stock market.
• The Forex market is open 24×7, except on weekends.
• There are no geographical restrictions. Anyone can trade from anywhere at anytime.
• The Forex market has low trading costs.

Online Forex Trading

Today Forex trading volumes has grown tremendously. In the time of internet and such fast paced technology, more and more people are indulging in online Forex trading. Online Forex trading has made it possible for people to participate in trading from any part of the world.

Benefits of Online Forex Trading

The benefits of online Forex trading are as follows :

• The most important benefit of online trading is that it is flexible. Anyone can sit comfortably at home and participate anytime in the day or night except on weekends and participate in online Forex trading.
• Secondly, once you open an online Forex trading account, you can immediately get access to a range of tools and software along with other resources which may help you to make your next investment decision.

Currency Calculations

Trading involves any two currencies that can be traded over the counter. Forex currencies are always traded in pairs i.e. you buy one and sell the other currency simultaneously.

Cross Rate Calculations

Q.) 1 USD = CHF 0.9405 – 15
1 USD = CAD 1.0397 – 07
Calculate value of 1 CAD in terms of CHF

Q) USD 1.5235 – 45 per GBP
EUR 1.1790 – 00 per GBP
Calculate USD per EUR quotation.

Q) USD / INR 53.8325 – 75
USD / SEK 6.4745 – 45
Calculate 100 INR / SEK quotation.

Q) 100 INR / USD 1.8513 – 18
USD / JPY 93.1875 – 75
Calculate 100 JPY / INR quotation.

Q) 100 INR / USD 1.8595 – 00
100 JPY / INR 58.2335 – 35
Calculate USD / JPY quotation.

Q)EUR 0.7692 – 02 per USD USD
1.5390 – 00 per GBP
Calculate GBP per EUR quotation.

Q)AUD 0.9898 – 08 / USD
SGD 1.2400 – 10 / USD
Calculate AUD per SGD quotation.

Q)SEK 9.7575 – 75 = 1 GBP
GBP 0.6494 – 04 = 1 USD
Calculate value of 1 SEK in terms of USD.

Q) USD / INR 52.9885 – 35
EUR / USD 1.2870 – 80
Calculate INR/EUR quotation.

Q)1 USD = CAD 1.0530 – 40
1 USD = INR 54.1365 – 15
Calculate value of 1 CAD in terms of INR.

Percentage Spread Calculations

Q) 1 USD = CAD 1.1290 – 00 Calculate %age spread.

Q) 100 INR = USD 2.1605 – 10 Calculate %age spread.

Q) USD / SGD 1.4395 – 05 GBP / SGD 2.6865 – 75
Calculate GBP / USD quotation. Establish relationship between the three quotations in terms of %age spread.

Q) Mean rate GBP / INR 78.6500 AND SPREAD = 0.0030. Calculate %age spread and GBP / INR quotation.

Q) Flat rate USD / NZD 1.1785 and spread = 10 points. Calculate %age spread and USD / NZD quotation.

Q) Average rate EUR / SEK 8.3590 and spread = 80 points. Calculate %age spread and EUR / SEK quotation.

Q) Ask rate USD / CHF 0.9406 and spread = 12 points. Calculate USD / CHF quotation and % age spread.

Q) Bid rate EUR / CHF 1.2096 and spread = 0.0014. Calculate EUR / CHF quotation and % age spread.

Q) Mid rate USD / EUR 0.7752 Percentage spread = 0.1290%. Calculate spread and USD / EUR quotation.

Q) Spread = 0.0014 and % spread = 0.0810%. Calculate mid rate and the quotation.