The Foreign exchange market, in banking parlance, is the “virtual place” where currencies are traded/exchanged. Exchange of Currencies is the back bone of foreign trade and business. It also is a huge income earner in the case of countries where Tourism is a major attraction.
A bank account held in a foreign country by a bank, denominated in the currency of that foreign country. Nostro accounts are used to facilitate settlement of foreign exchange and trade transactions. The term Nostro is derived from the Latin word for “ours.” Conversely, accounts that are held by a bank in its home country for foreign banks are called Vostro accounts, derived from the Latin word for “yours.”
Buying and Selling:
In the forex market, money is like any other commodity. The price is of a currency subject to the demand and supply in the market as well as economic factors affecting the country of the currency. Like any other commodity, the price of a currency is quoted for SPOT as well as FORWARD transactions. It is always quoted in currency pairs viz. the US dollar vs. the Canadian dollar (USD/CAD) or the US dollar vs. the Japanese yen (USD/JPY).
Generally, all foreign exchange transactions, where settlement happens on Trade date+2 Working days are called SPOT transactions. For classification purposes all the transactions that are settled with same day value (Trade date = Settlement date), Next day value (Trade + 1W day) and SPOT value (Trade + 2W days) are classified under SPOT transactions.
All foreign exchange transactions, where settlement happens beyond 2 workings days from the Trade date are called Forward Transactions. Forward contracts are agreements between two parties to exchange two designated currencies at a specific time in the future, which is Trade date + 3 or more working days.
A Swap is a pair of foreign exchange transactions where a set of currencies are exchanged at a SPOT date in the first leg and reversed at a FORWARD date. Generally the first part is a SPOT trade and the second part is a FORWARD trade. Forex Swaps are most often used for covering maturity mismatches, hedging or speculation purposes as well.
In finance, an exchange rate (also known as a foreign-exchange rate, forex rate, FX rate) between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency.
For example, an interbank exchange rate of 65 Indian Rupees to the United States dollar (US$) means that Rs. 65 will be exchanged for each US$. In this case it is said that the price of a dollar in terms of Rupee is Rs.65.
In the Foreign exchange market, a different buying rate and selling rate will be quoted by the Foreign exchange dealers. Most trades are to or from the local currency. The quoted rates will include the dealer’s margin. Different rates are quoted for currency note exchanges and travellers’ cheques exchanged. For credit card transactions requiring conversion the rate will cover the interest cost on the credit period enjoyed by the user.
Forex in T24
The Foreign Exchange module (FOREX) has been designed to meet the growing needs of current day dealing operations in the Foreign Exchange Market.
It covers the accurate recording of all types of SPOT, FORWARD and SWAP transactions.
Limit exposure is checked on line. Position updating, Brokerage and SWIFT delivery of the related advices, confirmations and payments also happen on line on authorisation of a contract.
Charges and commission can be pre-defined.
Revaluation of currencies happen during end of day operations and the method of revaluation is parameter driven.