A study on forex risk management

Type :

Research papers

Pages :

48 pages

Format :

.doc

Published date :

03/20/2009

Category :

Economics & finance

Sub category :

Finance

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Summary :

Introduction
Forex vs equities
Forex vs futures
The benefits of forex trading
The seven most trade currencies in FOREX
Main forex markets
Important players in forex market
Foreign exchange market and its function
1. Structure of the foreign exchange market
2. Causes and factors affecting the exchange rate
Factors influencing a currency pair exchange rate
Types of trading system
Cash forex order types
Nature of transaction in forex market
Types of exposure
Important terms in forex
Forex option market
Fundamental analysis
Technical analysis
Standard methods of technical analysis
Technical analysis vs fundamental analysis
A study on daily fluctuations in forex market
Technical level London/New York
Risk management and trading
A study on hedging
Effective risk management tips
Suggestions and recommendations
Bibliography

Abstract

forex markets have been described as continuous auction markets, and have clearing houses for the latest information about supply and demand. They are the meeting places of buyers and sellers of an ever-expanding list of currencies today includes like EUR, GBP and JPY etc. trading have also been initiated along with future contracts, enabling buyers to participate in future markets with known risks.

Foreign exchange acts as a market place for people interested in arbitrage. The factors driving arbitrage are the differences and perception of differences of the equilibrium price determined by supply and demand at various locations.

Price risk may occur due to inflation, emplacement rate, differential interest rate, current-account deficits, terms of trade, public debt, political stability and economic performance, an increase in demand, decreased international production, etc.

The forex markets provide a means to transfer risk between persons holding the currency (hedgers) and other hedgers are persons speculating in the market.
Futures exchanges exists and are successful based on the principal that hedgers may forego some profit potential in exchange for less risk and speculators will have access to increased of it potential from assuming this risk.

An investor can also reduce his risk by get well trained in forex market through various demo accounts provided by companies (Reymount, fxstreet etc) and always an invester should consider both fundamental and technical factors before taking any decision.

For the futures market, the arbitrage activities are carried out through the exchange of paper promissory notes to sell or buy a particular currency at an agreed up on price at a future date. As persons with different perceptions of where supply and demand are currently and how supply and demand will change in the future interact, currency values are driven to equilibrium. As new information enters the market, people's perceptions change and the process of arbitraging begin again.