ADVERTIsem*nTS:
This article throws light upon the four main participants of foreign exchange market. The participants are: 1. Commercial Banks or Market Makers 2. Foreign Exchange Brokers 3. Central Banks or Reserve Bank of India 4. Corporates and Entrepreneurs.
Participant # 1. Commercial Banks or Market Makers:
Commercial banks are normally taking over the position to support the economy of the country by carrying over the foreign currency from one period to another, for meeting the future need of the country. They are also sometime making short sale (agree to sell or actually sell the foreign currency without any real capacity to sell through or borrow the required currency from others) of foreign currency to satisfy the need of firms to make payments.
Later on to bring the position in equilibrium, they quote the rates for buying and selling of foreign currency accordingly. As they are buying the foreign currency from the customer, the rate they quote for buying the foreign currency is technically named as Bid rate. When they sell the foreign currency to customer, the rate they quote is technically known as Ask rate.
Participant # 2. Foreign Exchange Brokers:
ADVERTIsem*nTS:
FE brokers do not buy or sell the foreign currency on their own account, as done by market makers. They are working as an intermediary between two parties, to satisfy their respective needs. As they are working as a bridge between buyers and sellers of the foreign currency, they are only earning the fees in the form of brokerage charges.
Participant # 3. Central Banks or Reserve Bank of India:
To protect the financial strength and stability of the country’s balance of payments, internal money supply, interest rates and inflation, RBI intervenes in the foreign exchange markets to protect the disequilibrium in the prices of foreign exchange conversion.
Participant # 4. Corporates and Entrepreneurs:
Corporate are the players in the FE market, to satisfy their need of payment in foreign currency towards imports of goods, commodities and services. On the opposite way, they need to convert foreign currency in home currency on account of export of goods, commodities, and services. The need of conversion also happens on account of transactions in financial markets across the globe, for loan disbursem*nt, repayment of loans, receipt and payment of annual charges, etc.
