An Introduction to Foreign Exchange Market Data:
Foreign exchange market data is immensely helpful in understanding and interpreting exchange rate movements in the short and medium term. This assists traders, strategistsand other players in the foreign exchange market in cognitive analysis of changes in industry competitive conditions stimulated by bilateral exchange rate movement.
Break-up of the Foreign Exchange Market Data: The data used in analysis of foreign exchange movements is usually a weekly report of the speculator’s position on the future market of CME (Chicago Mercantile Exchange).
The analysts use a ten year data for six currencies to determine the relation between variation in interest rates and weekly ups and downs in the speculator’s net position. It has been found that there is a high probability of about 0.75 of correctly guessing the exchange rate’s steering. The Research Data is the raw data for Foreign Market Analysis. It can be gathered from secondary sources like websites of stock exchanges in a very convinient manner.
Following are the different instruments that find a place in the foreign exchange market data:
Spot Transactions- Transactions in foreign exchange that are settled within two business days are known as spot transactions. One currency is converted into another at the prevailing price. This is the simplest form of conversion of currency available but it exposes the company to a good deal of risk as there is no protection for adverse movements in exchange rates that might occur between the pricing of a contract and the actual need for a buy or sell.
Forward Transactions- in this type of transaction, two parties enter into a contract to buy or sell an asset and the trade date is different from that of the delivery date. This type of transactions help in hedging currency exposure risk. No cash actually changes hands but in case of collaterized transactions, exchange of margin does takes place.
Foreign Exchange Swap- This is similar to a spot transaction where the two parties decide a future date to unwind the exchange.
Over-the-counter Options- The client arranges the option to suit his personal needs. He determines the amount, price and maturity in conjunction with his bank or merchant bank.