Methodological foundations of the foreign exchange market. Parameters that form segments of the foreign exchange market
The concept and functions of the foreign exchange market
The foreign exchange market is a relationship of foreign exchange transactions (currency exchange), has a specific character (plays an important role in the foreign economic activity of the country). The foreign exchange market at the same time provides the process of integrating the economy (national into the world).
Currency market functions:
1) contributes to the integration of the national economy into the world economy through the exchange of national money for foreign ones, and, consequently, the further course of the social division of labor and specialization in the production of certain products of some countries, which ultimately stimulates competition and the market way of doing business
2) is an alternative form of investment of money capital in countries with a weak national currency, since the acquisition of "hard" currencies allows investors to reduce the loss of their real savings in the domestic market at high inflation rates
3) allows you to receive high incomes on risky transactions of a speculative nature in the markets for futures contracts, as well as to insure against currency risks.
The foreign exchange market is an integral part of the market mechanism that unites economic relations that arise in the field of exchanging national money for foreign ones, and serves to promote the integration of the national economy in the world economy.
The main task of the foreign exchange market is to organize an uninterrupted system of exchange of national monetary units, which are legal tender exclusively on the territory of a given state, for foreign ones.
Segments of the foreign exchange market
The Russian foreign exchange market is divided into the following segments:
1) spot market (represents a market in which currency purchase and sale transactions are carried out at the currently agreed exchange rate, but the currency is delivered only two days after the conclusion of the transaction);
2) the futures contracts market (is a market where a futures exchange transaction is concluded at a fixed rate and a fixed amount in foreign currency);
3) the cash currency market.
The spot market, in turn, is divided into the market of freely convertible currencies and the market of limited convertible currencies, and the market of futures contracts is divided into segments corresponding to certain financial instruments, i.e. futures, forwards, options, etc.
In its composition, the foreign exchange market covers a fairly wide range of participants who make transactions for the purchase and sale of currency values. Conventionally, participants in the foreign exchange market can be divided into three key groups.
Users of the foreign exchange market are enterprises, citizens, foreign companies, participants in foreign economic activity and others, i.e. those participants who create the final demand and supply of foreign currency. Organizers of the foreign exchange market and intermediaries that carry out the movement of currency values - currency exchanges, brokerage firms, commercial banks.
The regulator of the foreign exchange market is the state represented by the Central Bank of the country.
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Federal State Budgetary Educational Institution of Higher Professional Education
Chelyabinsk State University
Institute of Industrial Economics, Business and Administration
Department of economics of industries and market
abstract
subject: "International currency relations"
on the topic: "Foreign exchange market»
Chelyabinsk
Introduction
The successful development of currency relations is possible if there is a special market where you can freely sell and buy currency. Without such an opportunity, economic counterparties simply would not be able to realize their currency relations - they would not have foreign currency to fulfill their external obligations, they could not turn the received foreign exchange earnings into national money to fulfill their internal obligations. Such a market is usually called a currency market.
Nevertheless, in the foreign exchange market, people buy and sell foreign currency not only for making payments, but also for other purposes: for speculative operations, currency risk hedging operations, etc. Moreover, these operations are acquiring an ever wider scope, which takes the foreign exchange market beyond the boundaries of a simple appendage to international settlement and payment relations and gives it the status of a relatively independent economic structure. In terms of its economic content, the foreign exchange market is a sector of the money market, in which demand and supply for such a specific product as currency are balanced. According to its purpose and organizational form, the foreign exchange market is a set of special institutions and mechanisms that, in interaction, provide the opportunity to freely sell and buy national and foreign currencies based on supply and demand. The foreign exchange market has all the attributes of an ordinary market: objects and subjects, supply and demand, price, special infrastructure and communications, etc.
1. Concept, currency market instruments
The economy of any state cannot exist without a developed financial market. An integral part of the financial market is the foreign exchange market. The foreign exchange market is a sphere of economic relations that manifests itself in the implementation of an operation for the sale and purchase of foreign currency and securities in foreign currency, as well as operations for the investment of foreign exchange capital. In the market, any economic entity - acts only as a seller or buyer. The foreign exchange market is a kind of tool for coordinating the interests of the seller and buyer of currency values. Any action of the seller or buyer in the market is associated with commercial risk. Commercial risk is the danger of possible losses from the implementation of a particular financial and commercial activity. The foreign exchange market also contains the concept of currency risk - the receipt by an economic entity of additional expenses or income, depending on changes in exchange rates. For any currency, the foreign exchange market consists of all international financial centers located in London, New York, Paris, Zurich, Frankfurt, Singapore, Hong Kong, Tokyo, where this currency is sold and bought for another currency. These international financial centers are interconnected by all means of communication and are in constant contact with each other, thus forming a single international currency market and providing round-the-clock foreign exchange trading.
Modern currency markets have the following features:
1. They belong to the group of efficient markets, which are characterized by a large volume of transactions (up to 2 trillion dollars a day), a huge number of participants, fairly free access to the market, availability of price information;
2. Internationalization is increasing;
3. Operations are carried out continuously throughout the day, since the main centers of currency trading are separated by time zones;
4. The purchase of currency is carried out mainly for speculative and arbitrage transactions;
5. There is instability in exchange rates, which has led to the fact that the exchange rate has become a kind of exchange commodity.
According to the entities operating with currency, the currency markets are divided into:
1. In the interbank foreign exchange market, there are three main segments according to the urgency of foreign exchange transactions: spot market - a market with immediate delivery of foreign currency. It accounts for up to 65% of the total currency turnover; forward market - forward market, where up to 10% of foreign exchange transactions are carried out; swap market - a market that combines transactions for the purchase and sale of currency on a spot and forward basis. It implements up to 25% of all foreign exchange transactions.
2. In the exchange segment of the currency market, transactions with currency can be made through the currency exchange, or through trading in derivatives (derivative stock instruments) in the currency departments of commodity and stock exchanges.
3. In the client segment of the foreign exchange market, individuals and corporate clients carry out foreign exchange transactions with the help of commercial banks.
Depending on the volume, nature of foreign exchange transactions and the number of currencies used, foreign exchange markets are divided into:
1. global currency markets - concentrated in the world's financial centers - in London, New York, Tokyo, Frankfurt am Main, Singapore, Paris. The leading world center of currency trading is London, it accounts for 1/3 of all currency transactions in the world.
2. regional foreign exchange markets - they carry out transactions with a certain range of convertible currencies (for example, the Kuwaiti dinar, etc.) 3. the domestic foreign exchange market is the market of one state.
It is understood as the whole set of operations carried out by banks located in the territory of a given country, for foreign exchange services for their customers (which may include companies, individuals and banks that do not specialize in international foreign exchange operations), as well as their own foreign exchange operations.
In countries with limited currency legislation, the official foreign exchange market is usually supplemented by a "black" (illegal) and "gray" (in which banks make transactions with non-convertible currencies) market. In relation to foreign exchange restrictions, free and non-free foreign exchange markets are distinguished, and according to the types of application of exchange rates - with one regime and with two regimes of the exchange rate. In general, most foreign exchange transactions in industrialized countries (about 80% of all foreign exchange transactions) are carried out in the interbank segment of the foreign exchange market and, mainly, in the current (spot) market. It is in the course of interbank transactions that the exchange rate is directly formed.
2. Functions of the foreign exchange market
The foreign exchange market performs the following functions:
1. transfers purchasing power from one country to another through currency exchange;
2. provides a clearing mechanism for international payments, without making significant changes to the net positions of commercial banks in the implementation of large transactions with the purchase / sale of currencies;
3. Provides a source of short-term credit to importers and borrowers by enabling banks to purchase term drafts drawn in foreign currency and held until maturity, with an obligation to pay a check drawn for a specific term;
4. provides methods for hedging open currency positions;
5. provides ample opportunities for speculative transactions;
6. provides opportunities for arbitrage transactions.
The transfer of funds or purchasing power from one currency to another is an essential function of foreign exchange markets. The rest of currency trading is used in transactions made by traders and speculators who buy and sell currencies in anticipation of quick profits from predicted changes in the relative value of the currency.
3. Structural characteristics of the foreign exchange market
3.1 Structuralcharacteristics of the foreign exchange market
By types and forms of functioning.
By area of distribution, i.e. in terms of breadth of coverage, it is possible to distinguish international (international financial centers) and domestic currency markets. So the international (world) currency markets are concentrated in the main financial centers of Western Europe, the USA, the Middle East, and East Asia. The largest centers are located in London, New York, Frankfurt am Main, Paris, Zurich, Tokyo, Singapore, etc. According to some estimates, the London market accounts for one third to one half of the annual turnover. It is gradually catching up with the New York market. In turn, both international and domestic markets consist of a number of regional markets, which are formed by financial centers in certain regions of the world or a given country. The international currency market covers the currency markets of all countries of the world. The international currency market should also be understood as a chain of global regional currency markets closely interconnected by a system of cable and satellite communications.
There is an overflow of funds between them, depending on current information and forecasts of leading market participants regarding the possible position of individual currencies. In relation to currency restrictions, one can single out free and non-free currency markets (this applies to regional and national currency markets), depending on the absence or presence of currency restrictions on it. Regulation of foreign exchange operations in foreign countries is carried out, as a rule, at two levels. This is state regulation carried out within the framework of the state's monetary policy, and restrictions imposed directly by banks to insure their activities against possible losses. The monetary policy of any state is, first of all, an element of the economic strategy of the government in power.
In the most general terms, the monetary policy of developed countries is the purposeful use by the authorities of certain mechanisms to achieve the goals of economic policy - stimulating economic growth, employment and combating inflationary trends. In general, monetary policy is designed to regulate the external competitiveness of the state, to protect the economy from the negative impact of currency instability and any external factors. Currency restrictions are a system of government measures (administrative, legislative, economic, organizational) to establish the procedure for conducting transactions with the subject of operation (foreign currency, securities denominated in it, currency values) in individual countries, imposed by national legislation. Currency restrictions include measures for the targeted regulation of payments and transfers of national and foreign currency abroad, as well as establishing the procedure for settlements in foreign currency on the domestic market. The foreign exchange market with foreign exchange restrictions is called a non-free market, and in the absence of them - a free foreign exchange market. According to the types of exchange rates used, the foreign exchange market can be with one regime and with a dual regime.
A single regime market is a foreign exchange market with free exchange rates, i.e. with floating exchange rates, the quotation of which is established at exchange auctions. A dual currency market is a market where both fixed and floating currencies are used simultaneously. The introduction of a dual currency market is used by the state as a measure to regulate the movement of capital between the national and international loan capital markets.
This measure is designed to limit and control the influence of the international loan capital market on the economy of a given state. According to the degree of organization, the foreign exchange market is exchange and over-the-counter. The exchange currency market is an organized market, which is represented by a currency exchange. Currency exchange - an enterprise that organizes trading in currency and securities in foreign currency. The exchange is not a commercial enterprise. Its main function is not to receive high profits, but to mobilize temporarily free funds through the sale of foreign currency and securities in foreign currency and to establish the exchange rate, i.e. its market value. The exchange currency market has a number of advantages: it is the cheapest source of currency and foreign exchange funds; orders put up for exchange auctions have absolute liquidity (the liquidity of currency and securities in foreign currency means their ability to quickly and without loss in price turn into rubles). The over-the-counter currency market is organized by dealers, who may or may not be members of the currency exchange, and conduct it by telephone, telefax, computer networks.
This is the so-called currency dealing (ForEx DEALING). After 1973, the prices of currencies were no longer determined by the gold reserves of countries (Brenton Wood Agreement) and today the over-the-counter currency trading market (total market turnover per day) is 1.2 trillion. US dollars, outpacing, for example, the US government debt market by about four times. It should be noted that the huge financial potential of this market determines the excess profits and excess losses that its participants bear.
The most famous is Soros's breakthrough, when on September 23-25, 1982, the profit received by his fund was estimated at 1 billion US dollars. The ForEx market can be divided into four "echelons" (segments). - large (margin = 10 mm. $) - medium (margin = 0.5 mln. $) - small (margin = 0.005 mln. $) - "starter" (margin = 1 $) Main game currencies: USD - US dollar; DEM = German mark GBP = British pound JPY = Japanese yen SWF = Swiss franc Of course, being opposite sides of the same coin, the exchange and over-the-counter markets (although they contradict each other to some extent) at the same time complement each other This is due to the fact that, while performing the general function of trading in currency and circulation of securities in foreign currency, they use various methods and forms of selling currency and securities in foreign currency.
The advantages of the over-the-counter foreign exchange market are: rather low cost of expenses for currency exchange operations. Bank dealers often use face-to-face foreign exchange auctions on the stock exchange to reduce their own costs for foreign exchange conversion by concluding agreements on the sale and purchase of currency at the exchange rate before the start of trading on the stock exchange.
On the exchange, commissions are charged from bidders, the amount of which is directly dependent on the amount of currency and ruble resources sold. In addition, the law establishes a tax on exchange transactions. In the over-the-counter market for an authorized bank, after the counterparty to the transaction has been found, the currency conversion operation is carried out practically free of charge; - higher speed of settlements than when trading on the currency exchange. This is primarily due to the fact that the over-the-counter foreign exchange market allows you to conduct transactions throughout the entire trading day, and not at a strictly defined time of the exchange session. Further, when classifying foreign exchange markets, it is necessary to single out the markets for eurocurrencies, eurobonds, eurodeposits, eurocredits, as well as "black" and "gray" markets.
Let's dwell on this briefly. The eurocurrency market is the international currency market of Western European countries, where transactions are carried out in the currencies of these countries. The functioning of the eurocurrency market is associated with the use of currencies in non-cash deposit and loan transactions outside the countries issuing these currencies. The Eurobond market expresses financial relations on debt obligations with long-term loans in Eurocurrencies, issued in the form of bonds of borrowers. The bond contains data on the amount of debt, the conditions and terms of its repayment, the procedure for obtaining interest in accordance with coupons (a coupon is a part of a bond certificate, which, when separated from it, gives the owner the right to receive interest). The eurodeposit market expresses stable financial relations for the formation of deposits in foreign currency in commercial banks of foreign countries at the expense of funds circulating in the eurocurrency market. The eurocredit market expresses stable credit relations and financial relations for the provision of international loans in eurocurrency by commercial banks of foreign states.
Derivatives trading in recent years is the most important segment of the development of financial markets. The rapid development of derivatives markets is facilitated by the existing volatility and rapid volatility in the prices of goods and financial instruments. When characterizing derivatives markets, we can single out: - the market for forward contracts; - futures market; - options market. Forward transactions, or forward transactions for cash, in accordance with which the buyer and seller agree to the delivery of a commodity or currency at a certain date in the future, are an alternative to futures and options practiced on the exchange, as well as one of the first forms of futures contract that arose as reaction to a significant price change. Futures market.
One of the most successful and at the same time the most controversial innovations in the global financial markets in recent decades has been the beginning of trading in financial futures, i.e. such futures contracts, which are based on financial instruments with a fixed interest rate and exchange rates. A futures contract is a legally valid agreement between two parties to deliver or receive a commodity of a certain quantity and quality at a pre-agreed price at a certain moment or a certain number of points in the future. Financial futures is an agreement to buy or sell a financial instrument at a pre-agreed price within a certain month in the future (on a certain day of the month).
The futures contract market serves two main purposes:
1. It allows investors to hedge against adverse price changes in the spot market in the future (hedger operations).
2. It allows speculators to open large positions with little collateral. Options market. Options are one of the types of futures transactions.
An option is a bilateral agreement to transfer rights (for the buyer) and an obligation (for the seller) to buy or sell a certain financial asset at a fixed rate on a pre-agreed date or within an agreed period of time. The currency options market was widely developed in the mid-1970s. XX century, after the introduction in most countries instead of fixed exchange rates floating (since March 1973). A currency option is a contract that gives the right (but not the obligation) to one of the participants in the transaction to buy or sell a certain amount of foreign currency at a fixed price (the strike price of the option) for a certain period of time, while the other participant undertakes, if necessary, to ensure the exercise of this right by being ready to sell or buy foreign currency at a certain negotiated price.
3.2 Market Participants
To give a more complete structural description of the foreign exchange market, it is necessary to list its participants and consider some of the features of their activities. Let's dwell on this issue in more detail. As a rule, there are three main groups of participants, each of which is not homogeneous in its composition. The foreign exchange market is predominantly an interbank market. Therefore, banks and other financial institutions, which constitute the first group of its participants, primarily act as its main actors. They can carry out operations both for their own purposes and in the interests of their clientele.
At the same time, participants can work in the market, entering into direct contact with each other, or act through intermediaries. In this category, first of all, commercial banks stand out, a special place in it is occupied by the central banks of countries. In addition, various financial institutions play a significant role, such as financial affiliates of large industrial and financial groups that have entered the world stage. The scale of their activities in the foreign exchange market is constantly increasing, especially rapidly they have grown in the last decade. For example, large companies operating in any area of production (electronics, aerospace engineering, chemical production, energy, automotive, energy production and processing, etc.) have their own banks or financial divisions operating in the foreign exchange market. To conduct foreign exchange transactions, large commercial banks have deposits in foreign financial institutions that are their correspondents.
At the same time, not all even large banks in Western Europe act as permanent participants in the foreign exchange market. For example, in France they are only a few banks: Credit Lyonne, Paribas, Societe Generale, Bank Nacional de Paris, Endosuez and some others. As already noted, the first group of participants in the foreign exchange market includes central banks. They occupy a special position in this group. First of all, by their status they are not commercial institutions and for this reason they differ significantly from commercial banks and other financial institutions. Central banks also have a dealing department in their structure. However, foreign exchange transactions occupy a subordinate place in the activities of central banks, since they serve for them mainly only as a means of carrying out their main functions and, as a rule, do not aim at the direct extraction of income. In addition, central banks have different types of counterparties and perform different functions. On the one hand, they are guided by the orders of their government (in those countries where the central bank does not enjoy full independence) or participate in the implementation of an economic policy agreed with it (in countries where the central bank is more independent).
They also coordinate their actions in the foreign exchange market with the policies of the central banks of other countries (in particular, when conducting foreign exchange interventions) and are guided by the provisions of the regulatory documents of international financial organizations. On the other hand, the function of central banks is to monitor the state of the foreign exchange market and regulate it. First of all, this concerns the exchange rate of the national currency, the adjustment of which in the desired direction is carried out, in particular, through interventions in the foreign exchange market, as well as with the help of the central bank's foreign exchange reserves. In addition, this may affect the operations of the country's commercial banks and other financial institutions, as well as brokers who are required to unconditionally provide the central bank with relevant information. The second group of foreign exchange market participants are independent brokers and brokerage firms.
In addition to conducting their own foreign exchange transactions, they carry out information and intermediary functions, which are closely interconnected. Their informational function is that they tell other market participants the exchange rates at which the latter are ready to make transactions. The intermediary function is that brokers concentrate in their hands orders to sell and buy currencies and provide useful information to bank dealers, which greatly facilitates the activities of the latter. Both individual brokers and brokerage firms have a wide network of correspondents and receive income (brokerage commission) on each transaction, both from the seller and the buyer of the currency.
The authority of a particular broker in the foreign exchange market, as a rule, depends on the scale of its activities, the number and solidity of its clientele, and the names of correspondents are the subject of trade secrets. This practice is of particular interest to some financial institutions that do not want to disclose their position in any currency until a certain point. In general, the activities of brokers contribute to the revival of business activity and increase the efficiency of the foreign exchange market. At the same time, it should be noted that the role of brokers in this market is gradually decreasing with a simultaneous increase in the share of transactions implemented through an automated dealer network. Currently, only about 1/3 of the total number of foreign exchange transactions is carried out by brokers. In the field of foreign exchange transactions, brokerage firms, like banks, have their own structure, consisting of departments, each of which deals with one or more currencies.
Accordingly, within the framework of the department, each broker specializes either in "spot" type transactions, or deals with transactions for a certain period, focusing on a specific group of correspondents. The largest and most famous of the brokerage firms in Western Europe are concentrated in London. These are firms of international scale, having representatives or branches not only at the London, but also at other currency exchanges. The third group of participants in the foreign exchange market includes all those who do not personally carry out transactions with currencies, i.e. those who do not speak here directly, but use the services of banks. First of all, they include legal entities (enterprises of industry, trade and other sectors of the economy, some financial non-banking institutions), as well as individuals. Non-banking financial institutions that do not directly engage in foreign exchange transactions include pension funds, insurance companies and hedge funds (or hedge companies). Being able to accumulate significant financial resources, they can also operate in international markets and are important participants in the foreign exchange market, acting through intermediaries.
3.3 Segments of the foreign exchange market
currency market broker futures
In the foreign exchange market, operations of various contents are carried out, which are united by the corresponding market segments. The main segments of the interbank foreign exchange market are the cash market (the market for transactions at the current rate, or telegraphic transfer operations, also referred to in Western literature as the "spot" market) and the derivatives market (or the market for transactions for a period). In the cash market (the "slot" market), the purchase and sale of currencies takes place on the terms of settlement within two business days after the date of the transaction and at the rate at the time of its conclusion. The cash market, being a part of the foreign exchange market, also functions continuously. This means that its participants can buy or sell currency during the entire time of its operation. The exchange rate of any currency is set on the spot market against the US dollar, while there may not be a direct correlation between other currencies at a certain moment. Despite the continuous nature of foreign exchange transactions and the constant determination of exchange rates, in some financial centers there is a so-called "fixing" procedure, the duration of which varies in different countries. "Fixing is the process of officially determining the rates of various currencies, i.e. their quotation during periodic meetings of the main market participants, which are held in each financial center.
For example, in Paris, on the premises of the Stock Exchange, since 1977, the fixing procedure has been taking place daily on weekdays for approximately 30 minutes (beginning at 13.30 in winter, and at 14.00 in summer). At the same time, the representative of the French Association of Exchanges announces the rates of the main currencies (the selling and buying rates for each of the currencies) against the French franc, which are then published in the official publication of France.
The difference between the seller's rate and the buyer's rate is called the "spread, or "margin" and represents the income of the bank using the mentioned quotes when conducting foreign exchange transactions. Such an official currency quote allows the clientele of commercial banks to better orient themselves regarding the situation in the foreign exchange market and more accurately formulate their orders to banks The exchange rate of any currency (usually in relation to the US dollar) is expressed as a figure that includes four decimal places, i.e. ten thousandths of 1. In this regard, in the professional terminology of dealers, the concept of "pip", i.e. "point ", denoting 1/10000 of the exchange rate.
For example, the exchange rate of the French franc against the US dollar can be expressed as 5.5950-5.5958, where the first corresponds to the purchase rate, and the second to the sale. In this case, the franc rate can also be represented as the following expression: 5.5950/08, where 08 is the number of "pips", which is the difference between the selling and buying rates, or "spread" ("margin"). The official quotation of currencies (fixing) in one form or another is carried out on most exchanges in the cities of Western Europe: in Amsterdam, Brussels, Madrid, Milan, Paris, Frankfurt am Main. However, the largest of them (London and Zurich) do not have such a quote.
Currently, the cash market ("spot" market) is still the largest segment of the foreign exchange market. Despite the fact that in recent years the volume of trading here has grown more slowly than in other segments (currency futures and options markets), the cash market accounts for slightly less than half (about 49%) of the total turnover of the foreign exchange market. Another important segment of the foreign exchange market is the futures market (forward transactions). Participants in this market assume the obligation to buy and sell the currency at the rate set at the time of the transaction, but with the condition of mutual delivery of currencies within the agreed time. Transactions are concluded either for a period of three to seven days, or for 1, 2, 3, 6, 9, 12 and 18 months, or for two or three years, for five years. The object of such transactions can usually be any freely convertible currency.
However, the longer the term of the transaction, the fewer currencies it can cover. The fact is that one of the two main purposes of futures transactions, in addition to extracting speculative profits, is primarily insurance against possible risk caused by changes in exchange rates. Therefore, with terms from three days to six months, it is possible to conclude transactions in almost all convertible currencies used in international settlements. In carrying out operations for a period of one and two years, such currencies as the Austrian schilling, the Belgian franc, the Spanish peseta, the Italian lira, the Portuguese escudo, as well as the monetary units of the Scandinavian countries, are almost never used. In contracts for a period of more than two years, only the leading currencies are used: the US dollar, the German mark, the Swiss franc, the Japanese yen and the British pound sterling. As a rule, when carrying out urgent transactions, banks require certain guarantees from customers in the form of appropriate deposits (except in cases where the counterparty is another bank or financial institution).
The need for such guarantees increases when the underlying currencies fluctuate significantly. Currencies with delivery at a certain time do not have an official quotation, their rates are formed under the influence of market forces, and therefore they differ from the rates of currencies with immediate delivery ("spot" transactions). Transactions for any period of more than two business days are called forward transactions.
Moreover, if the exchange rate for them is higher than the current "spot" rate, then they say that such a currency is quoted with a premium, but if it is lower than the rate for cash transactions, then we are talking about a discount. In the conditions of stabilization of the foreign exchange market, the volume of futures transactions is reduced in comparison with cash transactions. On the contrary, with significant fluctuations in exchange rates on the spot market, the volume of forward transactions increases. Thus, in recent years, due to the intensification of destabilizing phenomena in the foreign exchange market, the volume of urgent transactions increased faster than the volume of cash transactions. - There are two types of currency transactions in the forward market.
The first type includes ordinary forward transactions, which involve the purchase or sale of currency with maturities of more than two days. The second type is "swap" transactions, which are the simultaneous purchase and sale of currencies with different settlement periods. In this case, the same person always acts as a counterparty.
A "swap" transaction can also be defined as a combination of "spot" transactions and forward transactions (the classic type of transaction: "swap" = "spot" transaction + "forward". It should be noted that in addition to traditional "spot" transactions and forward transactions in In the 1970s, relatively new types of transactions (the so-called standard contracts) appeared on the foreign exchange market: currency futures and options, on the basis of which the corresponding market segments were formed. in the future at an agreed exchange rate Externally, futures are very similar to forward transactions, but there are the following differences between them: - futures are more standardized, as they are characterized by standard currency volumes and settlement periods - futures are traded on organized markets (futures exchanges) - dealers futures transactions are not traded directly with other dealers, because as clearing companies act as intermediaries between them. Currency options give the holder the right, but no obligation, to buy (premium deal, put option) and sell (premium deal, put option) currency by a specified date in the future at an agreed exchange rate.
The main differences between futures and options are as follows: - the owner of the option has the opportunity to buy or sell the currency, but is not required to do so; - in order to buy or sell an option, it is necessary to pay an additional premium to one of the parties. This means that an option, unlike a futures contract, has a fixed price; - trading in options is mainly carried out on the over-the-counter securities market.
The considered segments of the foreign exchange market in modern conditions are undergoing further evolution. As already noted, the cash market practically still retains the first place in terms of the volume of transactions among other segments in the total turnover of the foreign exchange market.
At the same time, the forward market, which includes conventional forward transactions and the swap market, developed much faster than the spot market in the early 1990s.
First of all, this refers to the market of "swap" transactions, which has become the second largest segment of the foreign exchange market (about 40% of turnover in 1992) after the market of cash transactions. The volume of transactions with foreign exchange options also increased significantly, although its share in the total turnover of the foreign exchange market remains modest relative to other segments.
Conclusion
Thus, we can say that the foreign exchange market is a mechanism by which legal and economic relationships are established between consumers and sellers of currencies. This is its main functional characteristic.
In addition, the foreign exchange market performs the following functions:
1. Timely implementation of international payments.
2. Regulation of exchange rates.
3. Diversification of foreign exchange reserves.
4. Insurance of currency risks.
Making profit by participants in the foreign exchange market in the form of a difference in exchange rates. In terms of structure, the foreign exchange market can be characterized from different perspectives: content, segments and participants. The foreign exchange market in Russia cannot be called developed compared to the world market, however, it performs some functions of the domestic foreign exchange market and has a structured system in many respects similar to other systems of the foreign exchange markets.
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foreign exchange market Forex (from foreign exchange- in lane. from English, “foreign currency”) is largely a market that provides other segments of the global financial market with means of payment. The daily turnover of the global foreign exchange market in April 2016 amounted to 5.1 trillion dollars. For the first time in a long time, there was a decrease in the volume of transactions, although not very significant. In past years, there was a significant increase in this indicator, which amounted to $5.3 trillion in 2013 and $4 trillion and $3.3 trillion in 2010 and 2007. respectively.
The relative volumes of transactions with major currencies are quite predictable: the largest share falls on reserve currencies, primarily the US dollar (Table 9.1).
Table 9.1
Shares of individual currencies in daily transactions in the global foreign exchange market
Source: Triennial Central Bank Survey. Bank for International Settlements 2016. See: Triennial Central Bank Survey. Bank for International Settlements. September 2016. P. 4. URL: http://vvvvw.bis.org/publ/rpfxl6fx.pdf.
However, attention should be paid to the dynamics of individual currencies of developing countries, in particular the Chinese yuan. In 2015, it was decided to include this currency in the SDR basket, despite the relatively small volume of transactions with it. Subsequently, the share of the yuan in world currency transactions increased from 2.2% to 4.0% from 2013 to 2016. In absolute terms, there was an increase from $120 billion to $202 billion.
The main operations of the foreign exchange market include (Fig. 9.1):
- spot transactions - transactions with immediate (within two days) delivery of currency;
- urgent transactions (with a delivery time of more than two days):
- - forward transactions - transactions with the supply of currency in the future at a fixed rate,
- - swap operations (including the so-called forex swap and currency swap),
- - currency options and futures.
Rice. 9.1.
Both forward and futures contracts contain an obligation to buy or sell a currency in the future at a fixed rate. The fundamental difference between them is that the forward contract is OTC and, therefore, its terms can be adjusted by agreement of the parties. Futures, on the other hand, circulates on an organized market, must meet the requirements of the exchange and is a standard instrument, which means it is more liquid, which determines the existence of a secondary market for futures contracts.
It seems necessary to dwell specifically on swap operations. This type of currency transactions is diverse and is not limited to transactions with the repurchase of currency. In addition, as you can see, their share in the volume of daily transactions in the global foreign exchange market exceeds the share of other transactions.
In its classical form, a swap operation contains two parts (the so-called swap legs). The first step is to sell or buy
currency on the terms of the raccoon with the simultaneous conclusion but the essence of a forward contract for a reverse operation in the future. The second stage is the execution of this fixed-term contract. Such transactions are reflected in the statistics (including the BIS) under the heading forex swap, their volume is about 2.4 trillion dollars, or 47% of the total market volume. Such transactions are predominantly of a short-term nature - 69% of transactions are concluded for a period of less than seven days.
There are other types of currency swaps, in particular the so-called currency swaps. At the first stage, one of the participants in the transaction (L) borrows a certain amount of currency (USD) and simultaneously lends to B, for example in euros. During the term of the contract, the participants exchange interest payments in the respective currencies at the rate LIBOR (London Inter Bank Offer Rate). When executing the contract, the participants pay the body of the loan in each currency (Fig. 9.2).
Rice. 9.2. Operation currency swap 1
The decline in the total volume of daily transactions in the foreign exchange market in 2013-2016 occurred unevenly and affected different instruments to varying degrees. It mainly affected spot transactions, the volume of which decreased from $2.05 trillion to $1.65 trillion. On the contrary, contracts Forex swap demonstrated significant growth both in absolute (from $2.23 trillion to $2.38 trillion) and in relative terms. To a large extent, this growth was due to a decrease in the volume of spot transactions with the Japanese yen.
A significant aspect in recent years is also a noticeable change in the structure of participants in the foreign exchange market. The BIS distinguishes among them three groups:
- 1) reporting dealers (repotting dealers), according to the BIS methodology, represented mainly by large commercial and investment banks;
- 2) other financial institutions (other financial institutions) - monetary authorities, small commercial banks, investment funds, hedge funds, institutional investors such as pension funds, insurance and reinsurance companies;
- 3) non-financial organizations (non-financial customers).
Throughout the 2000s the shares of the mentioned participants of the foreign exchange market in the total volume of performed transactions changed significantly. The main trend of the recent past can be considered a reduction in the importance of large banks and a simultaneous increase in the share of other financial institutions. By 2013, the reduction in the share of TNB averaged 30% and concerned all major types of foreign exchange transactions. The relative contribution of other financial institutions almost doubled, especially in terms of currency futures contracts - options and futures, as well as spot transactions. For a long time, the foreign exchange market has traditionally been an interbank market and a source of means of payment. The strengthening of the role of non-banking institutions testified to the growing speculative nature of this segment of the world financial market as well. However, by 2016 the dynamics had changed significantly - the transformation process had slowed down. The share of reporting banks has slightly increased - both on average and for most types of transactions. And the relative volumes of transactions made by other financial institutions, on the contrary, slightly decreased. To date, the data do not allow us to confidently state a change in the trend, including because the change in shares was accompanied by an overall reduction in the total volume of all transactions. Nevertheless, the dynamics of indicators indicates a high degree of instability inherent in the financial market in general and the currency market in particular (Table 9.2).
Table 9.2
Volumes of transactions in the world currency market
Operation | ||||||||||||
Operations raccoon: |
||||||||||||
financial organizations |
||||||||||||
non-financial organizations |
||||||||||||
Operations swap: |
||||||||||||
financial organizations |
Operation | ||||||||||||
non-financial organizations |
||||||||||||
from 7 days to 1 year |
||||||||||||
over 1 year |
||||||||||||
Options and other tools: |
||||||||||||
financial organizations |
||||||||||||
non-financial organizations |
||||||||||||
Total: |
||||||||||||
financial organizations |
||||||||||||
non-financial organizations |
International currency markets. A specialized segment of the financial market is the international currency markets, which serve the trading of currency values. The turnover of the world currency market exceeds 680 trillion. USD US per year, or 1.9 trillion. USD in a day.
The economic essence of the foreign exchange market is manifested in its functions. The foreign exchange market performs functions common to all markets:
commercial- provision of economic activity participants with foreign or national currency;
valuable- establishing such a level of the exchange rate at which the foreign exchange market and the economic system as a whole will be in balance;
informational- providing the participants of the foreign exchange market with information about the functioning of the foreign exchange market;
regulatory- Ensuring order and organization in the foreign exchange market.
The leading motive for operations in the modern foreign exchange market is speculative. A speculator, for example, buys a certain amount of euros in the morning and sells it for dollars in the evening. In the event of a favorable change in the exchange rate, the currency speculator receives one or another profit from the transaction (margin).
The development of the world economy is accompanied by a rapid increase in "hot money", that is, short-term, highly liquid speculative capital. The size of this capital today is hundreds of billions of dollars. This capital is constantly moving, concentrated or, conversely, split up to extract speculative profits on the difference in exchange rates. Performing this function, the foreign exchange market, at the same time, contributes to the influx of international capital into highly profitable areas of the world economy, ensuring its dynamic development.
The modern foreign exchange market is an extremely complex and dynamic system that is influenced by many economic, political, psychological factors and immediately responds to their changes. Compared to the material sphere, the foreign exchange market is more stochastic, the level of its uncertainty and unpredictability of development is much higher. Conducting foreign exchange transactions is objectively always associated with risk. The probability of incurring losses due to adverse changes in the exchange rate is denoted by the term "currency risk".
The foreign exchange market is not only a generator of currency risks, but also a system for their prevention. He plays the role of the insurer, and the insurance operation is called hedging. Hedging(from the English. hedge - fence, protection) is achieved with the help of an extensive system of special currency transactions and techniques, the use of which, however, requires special training. Speculative and insurance functions are closely related and represent two sides of the foreign exchange market.
According to the place of currency trading, there are exchange and over-the-counter segment of the foreign exchange market. The exchange currency market operates on special officially organized stock exchanges. Unlike it, in the over-the-counter market, currency trading is carried out by commercial banks on the basis of computer global systems.
Depending on the period of fulfillment of currency requirements and obligations, there are current and term segments of the foreign exchange market. In the current foreign exchange market, transactions are made within a short time - no more than two banking days (spot transactions). The derivatives market combines transactions, the execution of which is carried out for a longer time - usually 1, 2, 3, 6, 9 and even 12 months.
The formation of the national currency market in Russia began in 1991 with the creation of the exchange market, which includes eight currency exchanges. Commercial banks and the Central Bank of the Russian Federation (Bank of Russia) act as sellers and buyers of foreign currency on the stock exchanges. In Russia, a floating exchange rate regime was introduced, which depends on the ratio of supply and demand on the country's currency exchanges, primarily on the Moscow Interbank Currency Exchange (MICEX). A direct quotation of the ruble to foreign currency is applied, i.e. a unit of foreign currency is expressed in a certain number of rubles.
The official exchange rate of the US dollar against the ruble is set by the Bank of Russia, taking into account the results of trading on the MICEX. In order to maintain a stable exchange rate, the Bank of Russia fixes the exchange rate on a daily basis and, in order to maintain the official exchange rate of the ruble, has introduced a "dirty floating" regime of the exchange rate, i.e. periodically intervenes in the formation of demand and supply for currency on the MICEX, primarily for the US dollar, through special foreign exchange interventions. The rate of other currencies is determined on the basis of the cross rate. At the same time, the exchange rates of these currencies against the US dollar are used as an intermediate (third) currency.
Since September 2003, a new fixing procedure has been introduced: the official exchange rate of the ruble against the dollar is determined on the basis of the results of trading on the MICEX with a settlement term "tomorrow". Previously, within the framework of a single trading session (ETC), there were only two instruments - these are the calculations "dollar - ruble" and "euro - ruble" with the term "today". Moreover, the time frames of these trades were very limited - from 10.00 to 11.00 in the dollar trades and from 10.00 to 11.30 in the "euro - ruble" trades. Now a third instrument has appeared - "dollar - ruble" with a settlement term "tomorrow", which will be traded from 10.00 to 16.45 Moscow time. This significantly expands the opportunities for regional participants in the foreign exchange market. After all, at the usual daytime session of the MICEX, trading in dollars for "tomorrow" was conducted for a long time, but the opportunity to participate in them was mainly for Moscow dealers, and the Unified Trading Session takes place simultaneously according to the same rules on all eight stock exchanges of the country from Vladivostok to St. Petersburg.
The change in the system for determining the ruble exchange rate also means that the Central Bank has shifted its activity from the settlement market "today" to "tomorrow". Market participants believe that this has had a qualitative effect on the exchange rate of the national currency, it is now determined solely on the basis of supply and demand and will become more market-oriented, and this, in turn, will lead to a new round of ruble strengthening. For currency dealers, this new system for determining the official exchange rate will provide an opportunity to judge the goals and expectations of the Central Bank with greater certainty, based not on rumors and conjectures, but on its behavior during "tomorrow's" trading. As the elapsed time has shown, the "dollar - ruble" trades with the "today" settlement period, which took place without the participation of the Central Bank, really led to a decrease in the current dollar exchange rate.
Currently, the US dollar remains the key currency for fixing, and it is this currency that the ruble is quoted in, i.e., the price of the ruble is fixed against the dollar. But at the same time, the Bank of Russia also uses a new regime for regulating the exchange rate based on the dollar-euro currency basket, which contributes to strengthening the stability of the ruble exchange rate.
The mechanism of exchange trading in foreign currency is constantly being improved. Thus, in Russia since June 1997, the system of electronic lot trading (SELT) has been operating, which removed the previously existing temporary restrictions on foreign currency trading, dramatically increased its efficiency and flexibility on the Russian exchange market.
The second segment of the national currency market is the interbank currency market. It is organized by commercial banks that trade foreign currency among themselves and provide it to their clients. The interbank foreign exchange market is more liberal than the exchange market and is less dependent on the actions of the Bank of Russia. It responds faster and more quickly to changes in the supply and demand for foreign currency by foreign exchange market participants. The flexibility of the interbank foreign exchange market determines the general global trend towards the dominance of this segment in terms of the number of foreign exchange transactions. Thus, in recent years, the share of direct transactions between banks in the total foreign exchange turnover of the Russian Federation has increased from 85 to 94%.
World debt market. The modern debt market is about 34 trillion. USD in year. Most debt instruments are denominated in foreign currency and are called Eurobonds. The global stock market has an annual turnover of 26 trillion. dollars, but most of the transactions are speculative.
Most of the debt obligations are issued with the help of bonded loans, and this process is called securitization. Securitization- this is the involvement of an increasing amount of capital, regardless of the form of their existence, on the securities market through their short-term or long-term presentation in the form of certain securities. This is especially true of capital, which for various reasons is currently in an inactive form, for example, in the form of real estate: housing, fixed production assets, long-term reserves of raw materials, etc. Issuance of various bonds and other debt securities based on such property allows you to accelerate the turnover of this capital, receive additional income, expand the market and its opportunities.
Although loans issued by an appropriate loan agreement or with the help of securities are used to meet the same needs, there are many differences between them from an organizational and financial point of view. The latter are in different cost, terms of the loan, its size and the speed of obtaining borrowed funds (Fig. 22.1). Based on this classification, it is easy to imagine the general structure of the securities market (stock market).
Rice. 22.1. Differences between segments of the global market,
on which operations with loans and securities are carried out
The following parameters are reflected in the loan agreement.
Price. Bonds are issued with a fixed and floating interest rate, while loans are issued at a floating interest rate, the size of which is regularly reviewed. Thus, the cost of issuing bonds is much higher than the cost of loans.
To assess the state of trade in interbank deposits, an indicator is used, which is called LIBOR rate- the average rate of interest at which banks in London provide loans in Eurocurrencies to banks by placing a deposit with them. This is a frequently fluctuating rate in relation to short-term borrowings, dominating the London interbank market. It is the most important reference point for banks and other credit organizations in setting current prices for financial transactions.
Timing. Loans are medium-term loans, although average terms tend to increase. Bonds are long-term securities.
Loan sizes(especially syndicated) are usually higher than the amounts for which the issue of bonds is carried out.
The speed of receiving funds. The provision of loans in the credit market is carried out much faster than when issuing bonds.
An organized large-scale purchase and sale of securities is carried out, as a rule, on stock exchange. Starting from the XVI century. stock exchange trading in securities in a short time allowed participants to make gigantic fortunes and often just as quickly lose them. In the last decades of the XIX century. the mass creation of joint-stock companies in various industries flooded the stock exchange with shares and bonds of various companies, which sharply increased daily turnover and stimulated the exchange redistribution of property.
The stock exchange allows:
- selectively carry out long-term investment of capital;
- using the exchange turnover mechanism to mobilize funds intended for long-term investments;
- to carry out a more uniform development of all sectors of the country, trusting the market to independently control and manage the effectiveness of investments;
- promptly invest money capital and, if necessary, release it;
- to help short-term placement of loan capital;
- objectively and promptly assess the current state of the country's economy and the trend of its development or decline;
- conduct purposeful speculation in securities through capital intervention, subject to a correct assessment of the state of the economy in the short and long term;
- structure and develop the necessary areas of production through the issuance and operational issue of securities.
With the development of the banking system, individual large banks, fulfilling the instructions of their clients, issue shares of these clients, actually implementing the functions of the stock exchange and, as it were, competing with it. The concentration of banks and the creation of international banking consortiums lead to the fact that an increasing part of the securities circulate through the system of credit organizations, bypassing the stock exchange. Large banks are becoming more and more prominent players in stock speculation. These banks form sufficiently qualified analytical services that not only monitor emerging trends in the exchange rate fluctuations of securities, but also develop a strategy and tactics for their impact on the market. Banks often create special associations (explicit and hidden) - corners- to carry out activities aimed at organizing a mass purchase of securities, creating a rush demand, artificial inflation of the exchange rate and subsequent resale with the highest profit.
When, in the last decade, the scale of such bank operations began to lead to massive bankruptcies of the affected companies, the governments of a number of countries introduced by law state control over the issuance of securities and operations on stock exchanges. The created legal and regulatory filter has significantly reduced the possibilities and danger of excessive mayhem in the securities market.
The structure of the international securities market is presented in Table. 22.2.
currency market broker futures
In the foreign exchange market, operations of various contents are carried out, which are united by the corresponding market segments. The main segments of the interbank foreign exchange market are the cash market (the market for transactions at the current rate, or telegraphic transfer operations, also referred to in Western literature as the "spot" market) and the derivatives market (or the market for transactions for a period). In the cash market (the "slot" market), the purchase and sale of currencies takes place on the terms of settlement within two business days after the date of the transaction and at the rate at the time of its conclusion. The cash market, being a part of the foreign exchange market, also functions continuously. This means that its participants can buy or sell currency during the entire time of its operation. The exchange rate of any currency is set on the spot market against the US dollar, while there may not be a direct correlation between other currencies at a certain moment. Despite the continuous nature of foreign exchange transactions and the constant determination of exchange rates, in some financial centers there is a so-called "fixing" procedure, the duration of which varies in different countries. "Fixing is the process of officially determining the rates of various currencies, i.e. their quotation during periodic meetings of the main market participants, which are held in each financial center.
For example, in Paris, on the premises of the Stock Exchange, since 1977, the fixing procedure has been taking place daily on weekdays for approximately 30 minutes (beginning at 13.30 in winter, and at 14.00 in summer). At the same time, the representative of the French Association of Exchanges announces the rates of the main currencies (the selling and buying rates for each of the currencies) against the French franc, which are then published in the official publication of France.
The difference between the seller's rate and the buyer's rate is called the "spread, or "margin" and represents the income of the bank using the mentioned quotes when conducting foreign exchange transactions. Such an official currency quote allows the clientele of commercial banks to better orient themselves regarding the situation in the foreign exchange market and more accurately formulate their orders to banks The exchange rate of any currency (usually in relation to the US dollar) is expressed as a figure that includes four decimal places, i.e. ten thousandths of 1. In this regard, in the professional terminology of dealers, the concept of "pip", i.e. "point ", denoting 1/10000 of the exchange rate.
For example, the exchange rate of the French franc against the US dollar can be expressed as 5.5950-5.5958, where the first corresponds to the purchase rate, and the second to the sale. In this case, the franc rate can also be represented as the following expression: 5.5950/08, where 08 is the number of "pips", which is the difference between the selling and buying rates, or "spread" ("margin"). The official quotation of currencies (fixing) in one form or another is carried out on most exchanges in the cities of Western Europe: in Amsterdam, Brussels, Madrid, Milan, Paris, Frankfurt am Main. However, the largest of them (London and Zurich) do not have such a quote.
Currently, the cash market ("spot" market) is still the largest segment of the foreign exchange market. Despite the fact that in recent years the volume of trading here has grown more slowly than in other segments (currency futures and options markets), the cash market accounts for slightly less than half (about 49%) of the total turnover of the foreign exchange market. Another important segment of the foreign exchange market is the futures market (forward transactions). Participants in this market assume the obligation to buy and sell the currency at the rate set at the time of the transaction, but with the condition of mutual delivery of currencies within the agreed time. Transactions are concluded either for a period of three to seven days, or for 1, 2, 3, 6, 9, 12 and 18 months, or for two or three years, for five years. The object of such transactions can usually be any freely convertible currency.
However, the longer the term of the transaction, the fewer currencies it can cover. The fact is that one of the two main purposes of futures transactions, in addition to extracting speculative profits, is primarily insurance against possible risk caused by changes in exchange rates. Therefore, with terms from three days to six months, it is possible to conclude transactions in almost all convertible currencies used in international settlements. In carrying out operations for a period of one and two years, such currencies as the Austrian schilling, the Belgian franc, the Spanish peseta, the Italian lira, the Portuguese escudo, as well as the monetary units of the Scandinavian countries, are almost never used. In contracts for a period of more than two years, only the leading currencies are used: the US dollar, the German mark, the Swiss franc, the Japanese yen and the British pound sterling. As a rule, when carrying out urgent transactions, banks require certain guarantees from customers in the form of appropriate deposits (except in cases where the counterparty is another bank or financial institution).
The need for such guarantees increases when the underlying currencies fluctuate significantly. Currencies with delivery at a certain time do not have an official quotation, their rates are formed under the influence of market forces, and therefore they differ from the rates of currencies with immediate delivery ("spot" transactions). Transactions for any period of more than two business days are called forward transactions.
Moreover, if the exchange rate for them is higher than the current "spot" rate, then they say that such a currency is quoted with a premium, but if it is lower than the rate for cash transactions, then we are talking about a discount. In the conditions of stabilization of the foreign exchange market, the volume of futures transactions is reduced in comparison with cash transactions. On the contrary, with significant fluctuations in exchange rates on the spot market, the volume of forward transactions increases. Thus, in recent years, due to the intensification of destabilizing phenomena in the foreign exchange market, the volume of urgent transactions increased faster than the volume of cash transactions. - There are two types of currency transactions in the forward market.
The first type includes ordinary forward transactions, which involve the purchase or sale of currency with maturities of more than two days. The second type is "swap" transactions, which are the simultaneous purchase and sale of currencies with different settlement periods. In this case, the same person always acts as a counterparty.
A "swap" transaction can also be defined as a combination of "spot" transactions and forward transactions (the classic type of transaction: "swap" = "spot" transaction + "forward". It should be noted that in addition to traditional "spot" transactions and forward transactions in In the 1970s, relatively new types of transactions (the so-called standard contracts) appeared on the foreign exchange market: currency futures and options, on the basis of which the corresponding market segments were formed. in the future at an agreed exchange rate Externally, futures are very similar to forward transactions, but there are the following differences between them: - futures are more standardized, as they are characterized by standard currency volumes and settlement periods - futures are traded on organized markets (futures exchanges) - dealers futures transactions are not traded directly with other dealers, because as clearing companies act as intermediaries between them. Currency options give the holder the right, but no obligation, to buy (premium deal, put option) and sell (premium deal, put option) currency by a specified date in the future at an agreed exchange rate.
The main differences between futures and options are as follows: - the owner of the option has the opportunity to buy or sell the currency, but is not required to do so; - in order to buy or sell an option, it is necessary to pay an additional premium to one of the parties. This means that an option, unlike a futures contract, has a fixed price; - trading in options is mainly carried out on the over-the-counter securities market.
The considered segments of the foreign exchange market in modern conditions are undergoing further evolution. As already noted, the cash market practically still retains the first place in terms of the volume of transactions among other segments in the total turnover of the foreign exchange market.
At the same time, the forward market, which includes conventional forward transactions and the swap market, developed much faster than the spot market in the early 1990s.
First of all, this refers to the market of "swap" transactions, which has become the second largest segment of the foreign exchange market (about 40% of turnover in 1992) after the market of cash transactions. The volume of transactions with foreign exchange options also increased significantly, although its share in the total turnover of the foreign exchange market remains modest relative to other segments.