The Forward market can be
divided into two parts-Outright Forward and Swap market. The Outright Forward
market resembles the Spot market, with the difference that the period of
delivery is much greater than 48 hours in the Forward market. A major part of
its operations is for clients or enterprises who decide to cover against
exchange risks emanating from trade operations.
The
Forward Swap market comes second in importance to the Spot market and it is
growing very fast. The currency swap consists of two separate operations of
borrowing and of lending. That is, a Swap deal involves borrowing a sum in one
currency for short duration and lending an equivalent amount in another
currency for the same duration. US dollar occupies an important place on the
Swap market. It is involved in 95 per cent of transactions.
Major
participants in the Forward market are banks, arbitrageurs, speculators,
exchange brokers and hedgers. Commercial banks operate on this market through
their dealers, either to cover the orders of their clients or to place their
own cash in different currencies. Arbitrageurs look for a profit without risk,
by operating on the interest rate differences and exchange rates. Speculators
take risk in the hope of making a gain in case their anticipation regarding the
movement of rates turns out to be correct. As regards brokers, their job
involves match making between seekers and suppliers of currencies on the Spot
market. Hedgers are the enterprises or the financial institutions that want to
cover themselves against the exchange risk.
0 Comments