The foreign exchange market which are also known as forex, FX, or the currencies market is an over the counter (OTC) global marketplace. An over the counter (OTC) market is a decentralized market in which participants such as broker, dealer trade currencies, or other instruments without a central exchange.  While going on a trip abroad, one needs to have the currency of that country. For example, if you are traveling to Philippine, you need to carry Philippine Peso which is their currency, if you are travelling to New Zealand, you need to carry New Zealand Dollar.  

Participants in FX can buy, sell, exchange, and speculate on the relative exchange rates of various currency pairs. A currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other.

Foreign exchange markets are made up of banks, Forex dealers, commercial companies, central banks, investment management firms, hedge funds, retail forex dealers, and investors.

Due to the absence of Security Exchange Board of India regulation, forex trading is illegal in India. Indian citizens are prohibited from trading in foreign currencies by RBI. It is challenging to control and regulate currency trading in India, but Hawala trading takes place every day on a large scale.  Hawala is an informal method of transferring money without any physical money moving. It is described as a money transfer without money movement, without any paperwork, questioning or responsibility.  It works purely on trust.

Let’s look at different types of foreign exchange markets:

1.  The Spot Market

In the spot market, transactions involving currency pairs take place. A currency pair is the quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market. For example, if the quoted exchange rate for EUR/USD was $1.2456, then that is the spot rate. This happens impeccably and quickly. The transactions require instant payment at the prevailing exchange rate. A spot rate is the current price at which a particular currency can be purchased. The traders in the spot market are not subjected to the uncertainty of the market, which leads to an increased or decreased price between the buyer and seller settlement. The spot market consists of banks, forex dealers, commercial companies, central banks, investment management firms, hedge funds, retail forex dealers, and investors.

2.  Futures Market

The transactions in the futures market require future payment and distribution at an earlier agreed upon exchange rate which is known as the future rate. The transaction or agreement is more formal in nature which ensures that the terms of the transaction are set permanently which cannot be altered. Traders who conduct most of the transactions enjoy a consistent return on the assets. Regular traders prefer a future market transaction. Currency futures are an exchange-traded futures-contract that specify the price in one currency at which another currency can be bought or sold at a future date. Futures are done on an exchange, which is a party to the transaction. Currency futures contracts are legal binding and fellow parties who hold the contracts must deliver the currency amount on the specified delivery date. Another point to note is currency futures can be used to hedge (protect) volatility on price movements in currencies.

One party will agree to buy a certain amount of another currency at a set price at a specified time in the future. US dollars to euro futures are a popular futures contract and are a good example.

The first currency futures contract was created at the Chicago Mercantile Exchange (CME) in 1972 and it is the largest market for currency futures in the world today.

Currency futures contracts take place daily. This means traders are responsible for having enough capital in their account to cover the margins and losses which result after taking the position.

3.  Forward Market

The third type of foreign exchange market is the forward market where deals are like future market transactions. In this case, the parties will negotiate the terms of the transactions and the terms agreed-upon can be negotiated and altered as per the needs of the concerned parties. The forward market has higher flexibility as compared to the futures market. Forwards are executed between banks or between a bank and a customer. In the foreign exchange market, the forward price is derived from the interest rate differential between the two currencies, which is applied over the period from the transaction date to the settlement date of the contract.

Interbank forward foreign exchange markets are priced and executed as swaps. This means that currency A is purchased vs. currency B for delivery on the spot date at the spot rate in the market at the time the transaction is executed. At maturity, currency A is sold vs. currency B at the original spot rate plus or minus the forward points; this price is set when the swap is initiated.

The interbank market usually trades for straight dates, such as a week or a month from the spot date. Three- and six-month maturities are among the most common, while the market is less liquid beyond 12 months. Amounts are commonly $25 million or more and can range into the billions.

4.  Swap Market

When there is a concurrent borrowing and lending of two types of currencies between two investors, it is known as a swap transaction. Here, one investor borrows a currency and in turn, pays in the form of a second currency to the second investor. The transaction is done to pay off their obligations without having to deal with a foreign exchange risk.

The purpose of investing in a currency swap is to procure loans in foreign currency at favourable interest rates than borrowing directly from foreign market. During the financial crisis in 2008, the Federal Reserve (Central Banking system of the United States) allowed several developing countries that faced liquidity problems the option of a currency swaps for borrowing purposes. In a transaction arranged by investment banking firm, Salomon Brothers, the World Bank entered the very first currency swap in 1981 with IBM. IBM swapped German Deutsche marks and Swiss francs to the World Bank for U.S. dollars.2

Foreign currency swaps can be arranged for loans with maturities as long as 10 years. Currency swaps differ from interest rate swaps in that they can also involve principal exchanges.

The SAARC (South Asian Association for Regional Cooperation) currency swap facility came into operation on 15th November 2012. The RBI can offer a swap arrangement within the overall corpus of USD 2 billion. The swap drawls can be made in US dollar, Euro, or Indian rupee. The framework provides certain concessions for swap drawals in Indian rupee.

In a foreign currency swap, each party to the agreement pays interest on the other’s loan principal amounts throughout the length of the agreement. When the swap is over, if principal amounts were exchanged, they are exchanged once more at the agreed upon rate (which would avoid transactional risk) or the spot rate.

5.  Option Market

In the options market, the currency of exchange from one denomination to the other is agreed upon by the investor at a specific rate and on a specific date. The investor has a right to convert the currency on a future date but there is no obligation to do so.

Options traded in the forex marketplace differ from those in other markets in that they allow traders to trade without taking actual delivery of the asset. Forex options trade over the counter (OTC), and traders can choose prices and expiration dates which suit their hedging or profit strategy needs.

Conclusion

If you want to start forex trading, simply open to demat trading account and start investing. The transactions can be done in all conversions of currencies. Globalisation has increased in the number of foreign exchange transactions that are carried out each year. Foreign exchange transactions also include the conversion of currencies done at the airport kiosks or the payments made by government and financial institutions.

When price of a foreign currency falls, imports from that foreign country become cheaper. So, imports increase and hence, the demand for foreign currency rises.

Every Sunday I see many of my friends and relatives pulling the newspapers to open the astrology page to read their weekly predictions. Sometimes, even I do the same thing.  What changes every week, what do we expect to change so often? What’s that we all want from our lives? And does astrology give explanation for every few months for everything improper in our life?  Some planets will always retrograde and some will prograde. While one astrologer lists what to do, the other one just says the opposite. When one says travel, someone else says stay back home. When one says ‘’invest’’ the other says ‘’don’t invest for now’’.

And who does not visit astrologers/soothsayers? From the Prime Ministers, Presidents of nations, to the working class of people each one visits or sees soothsayers with a hope in heart that someday things will change for good. Astrology is full of fiction, intuition, nostalgic longing and archetype-driven poetry. It is a rich engine for psychic exploration. It gives us a hope, a dream, a vision, an intuition, an insight, something to look forward to…. It has the magic. Between the two extremes of life – yes and no, it provides thin gruel for our monotony and boring life. It helps people’s imaginary longings related to economic, emotional and social consequences.

Human beings are very reactive by nature. It’s a sad puzzle; some believe in an invisible deity responsible for the planet’s well-being, for our well-being. People have faith in the unknown. And hence we see astrology mushrooming all over. We pick out trends that fit our narrative. A Vedic astrologer might help you pick the ‘best date’ for your wedding, but if the marriage breaks up into a divorce, well, that too becomes part of the ‘plan.’

People want to know their future because they believe that they have greater things set for them. They don’t want to be stuck in their present, where they believe that nothing amazing is happening to them. They dream big, and realize that someday they will be able to do something stunning, without even realizing that they have the present, in which they don’t realize that that “something big” was the future that they were dreaming about in the past.

Astrology’s premise is that the planetary movements influence the moments in time. Since we’re part of the story of the Universe, our moment of birth recorded on the celestial clock is meaningful. The planets continue to move, engaging with the fixed in time energies of our birth chart. People cannot take in the mystery of things, they are also eager to unfold all the solutions the earth has to unravel.

Why do people believe in astrology? The answer to the question lies very much in the same realm as why people believe in just about any superstition. Astrology offers a number of things which many people find very desirable: information and assurance about the future, a way to be absolved of their current situation and future decisions, and a way to feel connected to the entire cosmos.

Astrology is an absurd tool of self-discovery, no matter how far you decide to take it. At first, the pieces of the puzzle may not seem to fit. But if you stick with it, at a certain point it “clicks” and the orchestrations of the cosmic dance make sense. Astrology shares this with many other beliefs which tend to be categorized as “New Age,” for example the idea that nothing in life is truly coincidental. On this view of life, everything which happens to us, even the smallest or seemingly most insignificant event, happens for some particular reason. Astrology then claims to provide at least some of the answers as to why they happen, and perhaps even a way to predict them in advance. In this way, astrology purports to help people understand their lives and the world around them – and who doesn’t want that?

In a sense, astrology does work. The way it is practiced today, it can work quite well. After all, most of those who visit an astrologer end up feeling satisfied and feeling that they have benefited. What this really means is not that astrology has accurately predicted the person’s future, but rather it means that visiting an astrologer or having a horoscope cast can be a fulfilling and personally satisfying experience.

If you take astrology as a truthful means of prediction, then you will be dissatisfied. If you use it as a useful motivation to your own thoughts and insights it’s ok to some extent. If you depend too much on it, for taking those important decisions in life, its vagueness may lead you nowhere.