PROFITEERING IN THE GLOBAL FOREX MARKET. -Presentation by R.K.Gurumurthy -Treasurer, Bank One Ltd

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1 PROFITEERING IN THE GLOBAL FOREX MARKET -Presentation by R.K.Gurumurthy -Treasurer, Bank One Ltd

2 The story of a successful trader 2

3 The story of a successful trader trader 3

4 The story of a successful trader 4

5 The story of a successful trader 5

6 The story of a successful trader 6

7 The story of a successful trader 7

8 The story of a very successful trader 8

9 The basics of any economic activity.. 9

10 The Global place What is a market A regular gathering of people for the purchase and sale of provisions, livestock, and other commodities The different s Exchange Traded or Over the counter Physical retail markets, such as local formers market or shopping malls Virtual s or internet markets Labor markets International Currency and Commodity s Stock s / Capital s Artificial markets created by regulation to exchange rights for derivatives - Carbon Trading Illegal markets such as the market for arms or drugs Characteristics of efficient markets Many buyers and sellers (lots of competition) Firms want to maximize profits (uniform motives) Ease of entry/exit into market (no restrictive quotas / taxes / laws) Perfect information (instantaneous, accurate, complete) Homogeneous product offerings The prime objective then is profiteering 10

regulation to exchange rights for derivatives - Carbon Trading Illegal markets such as the market for arms or drugs Characteristics of efficient markets Many buyers and sellers (lots of competition)

11 Is this how an Fx market would look? 11

12 .. A typical dealing room 12

13 The Foreign Exchange (Fx) Who are the Participants Central Banks, Authorized Dealers, Brokers, Clients, Retailers 13

14 The Structure The flow originates and ends with a client 14

15 Evolution of Fx s Liquidity IT S A 24- HOUR MARKET 15

16 SHARE OF THE PIE Evolution of Fx s Volumes 16

17 Evolution of Fx s Volumes 17

18 Fx s different types of Currency Trades Currency trading is generally conducted via five different types of transactions or trading vehicles: Spot Transactions - The buying of one currency against another currency for immediate delivery Forward Transactions- Negotiated (as opposed to standardized) contracts in which one party agrees to exchange a specific amount of a given currency for an equivalent amount of another currency at a set value on a specific date in the future. Vanilla Swaps - These are trades involving the simultaneous purchase of one currency and sale of an equivalent amount of another, but with differing delivery dates. Typically, one side of a swap will call for immediate delivery of the currency, while the other calls for future delivery, although some trades call for future delivery on both sides. 18

equivalent amount of another currency at a set value on a specific date in the future.

19 Fx s different types of Currency Trades Currency trading is generally conducted via five different types of transactions or trading vehicles: Currency Swaps - These are actually derivative products in that they involve other financial vehicles - typically loans - and call for converting principal and interest payments denominated in one currency to payments denominated in an alternate currency. Futures, Options and Other Derivatives - These are standardized contracts traded on regulated exchanges (or their electronic networks) like Chicago's CME Group. These are both exchange traded (Futures) and OTCs - Options 19

interest payments denominated in one currency to payments denominated in an alternate currency.

20 Profiteering in s Low hanging fruit? 20

21 .. Nor is it tight-rope walking 21

22 .. It s a judicious balance of risk and reward 22

23 How Fx traders generate profits.. Interbank market makes up for 48% for all fx trades this number is seeing a decline in recent years due to stricter regulatory control and the efficiency of price matching systems and advanced technology in treasury management 23

24 When Opportunity Knocks at your doorsteps 24

25 Futures Trading - Advantages Futures trading is considered as an efficient market tool for hedging the price volatility of underlying asset. In addition to hedging price changes, futures trading offers much more advantages over other forms of hedging tools.. Easy to own underlying commodity or stock. Instant execution of market orders Usually includes simple and reasonably low commission fees and plans. Availability of around the clock electronic trading services Availability of both standard and mini contracts especially for retailers Reasonable market liquidity available for all major futures types No need for holding/storing the underlying commodity or equity.. An efficient product to maximize profit and Limit risk on trading 25

26 Forward Contracts vs. Futures Forward Contract Futures Contract Meaning: Structure & Purpose: A futures contract is a standardized contract, traded A forward contract is an agreement between two on a futures exchange, to buy or sell a certain parties to buy or sell an asset (which can be of any underlying instrument at a certain date in the future, at kind) at a pre-agreed future point in time. a specified price. Customized to customers need. Usually no initial payment erequired. Usually used for Hedging Standardized. Initial margin payment required. Usually used for Speculation. Transaction Negotiated directly by the buyer and seller method: regulation: Not regulated Quoted and traded on the Exchange Government regulated market Institutional guarantee: The contracting parties Clearing House Risk: High counterparty risk Low counterparty risk Guarantees: No guranantee of settlement until the date of maturity only the forward price, based on the spot price of the underlying asset is paid Contract Maturity: Forward contract mostly mature by delivering the commodity Expiry date: Depending on the transaction Standardized Method of pretermination: Contract size: Opposite contract with same or different counterparty. Counterparty risk remains while terminating with different counterparty. Depending on the transaction and the requirements of the contracting parties. Both parties must deposit an initial guarantee (margin). The value of the operation is marked to market rates with daily settlement of profits and losses. Future contracts may not necessarily mature by delivery of commodity Opposite contract on the exchange. Standardized 26

27 Why a Futures Contract.. Highest Transparency Standard lots and Fixed Delivery Regulated and Settlement Guaranteed by Exchange (GBOT) Suitable for retail hedging Wider range of products and asset classes (Banks cannot offer metals) Lower Margin Daily MIS and ease of risk-management 27

28 The essentials of successful profiteering...the KISS principle 28

29 The essentials of successful profiteering.. Information is holy grail.. But money management is equally important 29

30 The essentials of successful profiteering.. Knowing your risk is paramount 30

31 Never flout the rules 31

32 One of my recent trade ideas.. 32

33 One of my recent trade ideas.. 33

34 34

1. HOW DOES FOREIGN EXCHANGE TRADING WORK?

1. HOW DOES FOREIGN EXCHANGE TRADING WORK? XV. Important additional information on forex transactions / risks associated with foreign exchange transactions (also in the context of forward exchange transactions) The following information is given