A

PROJECT REPORT
ON

FOREIGN EXCHANGE -HDFC BANK

Project Report submitted in partial fulfillment for the award of Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by
G VINAY KUMAR
H.T.No: 152023672077
UNDER THE GUIDANCE
MS. ANU PREETHI

KESHAV MEMORIAL INSTITUTE OF MANAGEMENT

Approved by AICTE, Affiliated to Osmania University
Hyderabad -
(2024)
 INTRODUCTION
FO R EI GN E XC HAN GE ( FO RE X )
FOREX-The abbreviation of Foreign Exchange

What is Foreign Exchange?

 Foreign Exchange is the purchase or sale of one nation’s currency in exchange for
another nation’s currency. Foreign Exchange makes possible international
transactions such as imports and exports and the movement of capital between
countries.

 Foreign Exchange is the money in one country for money or credit or goods or
services in another country. Foreign Exchange includes foreign currencies, foreign
cheques and foreign drafts.

 Foreign Exchange is the transaction of international monetary business, as between

governments or businesses of different countries.

 Foreign Exchange is the negotiable bills drawn in one country to be paid in another
country.

 Foreign Exchange is any currency other than the local currency which is used in
settling international transactions.

 Foreign Exchange is the system of trading in and converting the currency of one
country into that of another country.

 Foreign Exchange is the transfer of credits to a foreign country to settle debts or

accounts between residents of the home country and those of the foreign country.
D E FI NIT IO N O F FO R EI GN E XC HAN GE :
The foreign capital earned by a country’s exports. Since the currency of many less
developed countries is not accepted by international markets, it often becomes necessary
to earn foreign exchange in order to buy imports.

- Ge og ra phy
D I CTI O NA R Y
 Foreign exchange exposure and risk are important concept in the study of
international finance. It is the sensitivity of the home currency value of asset,
liabilities, or operating incomes to unanticipated changes in the exchange rates.

 Exposure exists if the home currency values on an average in a particular manner.

It also exists where numerous currencies are involved.

 Foreign exchange risk is the variance of the home currency value of items arising
on account of unanticipated changes in the exchange rates.The derivative
instruments like forwards, futures and options are used to hedge against the foreign
exchange risk of the Multinational companies.

 The original derivatives contract of International Finance is the ‘Forward exchange

contract’. Forward Foreign exchange is a traditional and popular risk management
tool to obtain protection against adverse exchange rate movements. The exchange
rate is ‘locked in’ for a specific date in future, which enables the person involved
in the contract to plan for and budget the business expenses with more certainty.

 Forward exchange market, has since the 1960s, played the role of linking
international interest rates. Today, however, Forward contract have to share other
instruments and markets for arbitrage and for hedging. These newer derivative
instruments include Futures, Options and Swaps.
FOREIGN EXCHANGE MARKET

The foreign exchange market is a global decentralized or over-the-counter (OTC) market

for the trading of currencies. This market determines the foreign exchange rate. It includes
all aspects of buying, selling and exchanging currencies at current or determined prices. In
terms of trading volume, it is by far the largest market in the world, followed by the Credit
market.[1]

The main participants in this market are the larger international banks. Financial
centers around the world function as anchors of trading between a wide range of multiple
types of buyers and sellers around the clock, with the exception of weekends. Since
currencies are always traded in pairs, the foreign exchange market does not set a
currency's absolute value but rather determines its relative value by setting the market
price of one currency if paid for with another. Ex: US$1 is worth X CAD, or CHF, or JPY,
etc.

The foreign exchange market works through financial institutions, and operates on several
levels. Behind the scenes, banks turn to a smaller number of financial firms known as
"dealers", who are involved in large quantities of foreign exchange trading. Most foreign
exchange dealers are banks, so this behind-the-scenes market is sometimes called the
"interbank market" (although a few insurance companies and other kinds of financial firms
are involved). Trades between foreign exchange dealers can be very large, involving
hundreds of millions of dollars. Because of the sovereignty issue when involving two
currencies, Forex has little (if any) supervisory entity regulating its actions.

The foreign exchange market assists international trade and investments by enabling
currency conversion. For example, it permits a business in the United States to import
goods from European Union member states, especially Eurozone members, and pay Euros,
even though its income is in United States dollars. It also supports direct speculation and
evaluation relative to the value of currencies and the carry trade speculation, based on the
differential interest rate between two currencies.[2]

In a typical foreign exchange transaction, a party purchases some quantity of one currency
by paying with some quantity of another currency.

The modern foreign exchange market began forming during the 1970s. This followed
three decades of government restrictions on foreign exchange transactions under the
Bretton Woods system of monetary management, which set out the rules for commercial
and financial relations among the world's major industrial states after World War II.
Countries
gradually switched to floating exchange rates from the previous exchange rate regime,
which remained fixed per the Bretton Woods system.

The foreign exchange market is unique because of the following characteristics:

 its huge trading volume, representing the largest asset class in the world leading to
high liquidity;
 its geographical dispersion;
 its continuous operation: 24 hours a day except weekends, i.e., trading from
22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);
 the variety of factors that affect exchange rates;
 the low margins of relative profit compared with other markets of fixed income; and
 the use of leverage to enhance profit and loss margins and with respect to account size.

As such, it has been referred to as the market closest to the ideal of perfect competition,
notwithstanding currency intervention by central banks.

According to the Bank for International Settlements, the preliminary global results from
the 2016 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives
Markets Activity show that trading in foreign exchange markets averaged $5.09 trillion
per day in April 2016. This is down from $5.4 trillion in April 2013 but up from $4.0
trillion in April 2010. Measured by value, foreign exchange swaps were traded more than
any other instrument in April 2016, at $2.4 trillion per day, followed by spot trading at
$1.7 trillion.

The $5.09 trillion break-down is as follows:

 $1.654 trillion in spot transactions

 $700 billion in outright forwards
 $2.383 trillion in foreign exchange swaps
 $96 billion currency swaps
 $254 billion in options and other products
MARKET SIZE AND LIQUIDITY

The foreign exchange market is the most liquid financial market in the world. Traders
include governments and central banks, commercial banks, other institutional investors
and financial institutions, currency speculators, other commercial corporations, and
individuals. According to the 2010 Triennial Central Bank Survey, coordinated by the
Bank for International Settlements, average daily turnover was $3.98 trillion in April 2010
(compared to $1.7 trillion in 1998).[57] Of this $3.98 trillion, $1.5 trillion was spot
transactions and $2.5 trillion was traded in outright forwards, swaps, and other derivatives.

In April 2010, trading in the United Kingdom accounted for 36.7% of the total, making it
by far the most important centre for foreign exchange trading in the world. Trading in the
United States accounted for 17.9% and Japan accounted for 6.2%.

For the first time ever, Singapore surpassed Japan in average daily foreign-exchange
trading volume in April 2013 with $383 billion per day. So the order became: United
Kingdom (41%), United States (19%), Singapore (6%), Japan (6%) and Hong Kong(4%).

Turnover of exchange-traded foreign exchange futures and options has grown rapidly in
recent years, reaching $166 billion in April 2010 (double the turnover recorded in April
2007). As of April 2016, exchange-traded currency derivatives represent 2% of OTC
foreign exchange turnover. Foreign exchange futures contracts were introduced in
1972 at the Chicago Mercantile Exchange and are traded more than to most other futures
contracts.

Most developed countries permit the trading of derivative products (such as futures and
options on futures) on their exchanges. All these developed countries already have fully
convertible capital accounts. Some governments of emerging markets do not allow foreign
exchange derivative products on their exchanges because they have capital controls. The
use of derivatives is growing in many emerging economies. [60] Countries such as South
Korea, South Africa, and India have established currency futures exchanges, despite
having some capital controls.

Foreign exchange trading increased by 20% between April 2007 and April 2010, and has
more than doubled since 2004.[61] The increase in turnover is due to a number of factors:
the growing importance of foreign exchange as an asset class, the increased trading
activity of high-frequency traders, and the emergence of retail investors as an important
market segment. The growth of electronic execution and the diverse selection of execution
venues has lowered transaction costs, increased market liquidity, and attracted greater
participation
from many customer types. In particular, electronic trading via online portals
has made it easier for retail traders to trade in the foreign exchange market. By
2010, retail trading was estimated to account for up to 10% of spot turnover,
or $150 billion per day (see below: Retail foreign exchange traders).

Foreign exchange is traded in an over-the-counter market where

brokers/dealers negotiate directly with one another, so there is no central
exchange or clearing house. The biggest geographic trading center is the
United Kingdom, primarily London. According to TheCityUK, it is
estimated that London increased its share of global turnover in traditional
transactions from 34.6% in April 2007 to 36.7% in April 2010. Owing to
London's dominance in the market, a particular currency's quoted price is
usually the London market price. For instance, when the International
Monetary Fund calculates the value of its special drawing rights every day,
they use the London market prices at noon that day.
 AIMS AND OBJECTIVEES

 Remittances
Residents can make remittances up to $250,000 per financial year for a variety of purposes,
including opening a foreign currency account, investing in property, and investing in shares
or debt instruments.
 Foreign currency accounts
These accounts allow you to manage multiple currencies in one place, access funds from
anywhere, and reduce conversion fees.
 Hedging solutions
HDFC Bank MyBusiness offers customized solutions to help businesses lower the risk of
international currency fluctuations.
 Forex cards
HDFC Bank offers a Forex Plus Card that can be used for a variety of purposes, including
international travel, overseas studies, and international business trips.

HYPOTHESES FOR THE STUDY Monthly Data from selected two companies from the
Banking Industries. NULL HYPOTHESES (Ho): There is no significant difference between
observed runs lies between upper and lower limit. ALTER NATIVE HYPOTHESES (Ha):
There is a significant difference between observed runs lies between upper and lower limit.

RESEARCH METHODOLOGY

RESEARCH DESIGN:
Research design is descriptive in nature. Data from various sites are collected
and analyzed with the help of various tools which helps to identify specific
behavior of the market.

RESEARCH TYPE:
Primary data:
The primary data is collected from the lectures of project guide..
Secondary data:
The secondary data is
collected from the Books,
Journals,
Business magazines.
SOURCE OF DATA:
The primary source for the project is collected from various financial book,
magazines and Weizmann forex Ltd as part of the training class undertaken
for project.

TOOLS FOR ANAYLISIS

 The total revenues are assumed 20% as domestic & 80% as foreign
revenues.(Euro, US dollar & Pound)

 The total expenses of the income statements are taken 75% as domestic
and 25% as foreign expenses(Euro, US dollar & Pound)
 The exchange rate of Rupee, Dollar, Euro, and Pound is considered
with sensitive values Rs 64, 64.5, 76.5, 76, 95.5, 95.
 To have a comparative study Rs. 64.10 per dollar is taken as base and
compared the company’s profitability when the exchange rates
fluctuate.
 To analyze and to compare study INR (Indian Rupee) and $(American
dollar), Euro & GBP (Pound) is taken into consideration.
CHAPTERISATION
CHAPTER -1 - INTRODUCTION
This chapter includes the introduction of the topic, need, scope, objectives of the study,
Project limitations and methodology of the study.
CHAPTER - 2 REVIEW OF LITERATURE
This chapter includes the theoretical background and articles written by different authors
and brief explanation of the topic.
CHAPTER - 3 - INDUSTRY PROFILE & COMPANY PROFILE
CHAPTER - 4 - DATA ANALYSIS AND INTERPRETATION
This chapter includes the comparative analysis of the financial statements of the five
years data and it also includes the interpretation based on the study.
CHAPTER - 5 – SUMMARY AND CONCLUSION
This chapter includes the overall summary of the project and the conclusion based on the
study during the period.