conversion transactions - a transaction carried out by members of the foreign exchange market for the exchange of one State to another currency.However, their volumes specified in advance, as the course of the commission payments after a certain time.If we look at the concept from a legal point of view, it can be concluded that the conversion operation - it is the purchase and sale of foreign currency.In order to designate it, used the concept of a sustainable English-speaking Forex or FX, which is an acronym for the words Foreign Exchange Operations - "foreign exchange transactions".
Conversion operations are different from traditional lending and deposit that are performed to determine the exact point in time.Transactions of the second type have a different time duration and urgency.
Forms conversion operations
These operations can be divided into two main types:
- current or spot transactions;
- urgent or forward transactions.
spot transactions (spot) occupy the largest volume on the market.International practice provides that the date of implementation - the second business day after.These conditions are suitable for participants of the transaction, as during the time allowed, you can design and processing of payment documents available documentation.A place that is defined for the exchange at current prices, is a spot market (spot market).
Forward exchange operations (forward) include:
- forwards (forwards);
- futures (futures);
- options (options);
- swaps (swaps).
These transactions can also be found under the name of "derivative financial instruments" (derivatives).Their specially created for the real business.This is due to the fact that they allow in the future to reduce the change of quotations on the international currency market.For those who wish to make using the Internet on the "Forex", these financial instruments have little or no value.At the same time they should be considered for understanding the concept of conversion operations and their species.
spot market and its participants
spot market is a market of express delivery of currency.The main participants are banks, currency exchange, which is carried out on the spot market with partners:
- firms with clients directly;
- commercial banks such as the interbank market;
- with banks and customers through brokers;
- with central banks of countries.
spot market can be served by individual needs and speculative trading companies and financial institutions.
Terms spot market
rules of the market are not fixed in international conventions, but they adhere to all the participants in the transactions fail.These include:
- payments must be made no later than two business banking days, and the sum of the agreed currency without setting the interest rate;
- most transactions are implemented on the basis of the type of computer trading which provides confirmation on the next business day via electronic notices;
- course should be followed without fail.
main tool called spot market electronic transfer, carried out through the channels of SWIFT (SWIFT).
Goals perform conversion operations "spot"
to transactions of this type accounts for about 40 percent of trading volume FOREX.Their main objectives can be called:
• execution of orders of clients such as the conversion of the financial institution;
• liquidity support for banks which carry out currency exchange from one to another with the help of its own funds;
• Finally, speculative foreign exchange transactions;
• exclusion of the possible presence of uncovered balances, which made the regulation of foreign exchange position;
• decline in the surplus in one currency, as well as compensation for the needs of the other.
Forward contracts Forward
conversion operation - a Currency Exchange Transaction and to an agreed rate.The value date in this case is postponed for a specified period, which is stipulated by both parties in the transaction.
Forward contracts are most useful in the event that the domestic company has plans to purchase goods abroad for US dollars.However, she may not have the required amount of funds for operations at the time of conclusion of the contract, but expects they arrive.In this situation, it makes sense to use a forward contract to purchase the required amount of currency from the relevant valuation date at competitive quotations for the company.This option is acceptable while waiting for changes in exchange unfavorably to her side.
Forward contracts can benefit and minimize the risks, but in some cases may cause a loss of profit.For example, a domestic company, this means that the currency will be no more, but rather less.Thus, the company could pay a smaller amount for the goods in rubles.
Futures and Options Futures
conversion operation - a deal that has fixed the amounts of currency and standard terms of value.Thus, these contracts can be sold as securities.To trade in the futures market is.The average duration of treatment data conversion operations can be called three months.
Options are similar to futures, but the obligation of a party much weakened.From the transaction can be waived at any time, if necessary.At the same time these contracts are traded on the options market individually designed.
Swaps and features
Swaps are exchange conversion transactions that involve the conclusion of the deal, aimed at purchase and sale of assigned amount of currency.Commitment in this case is quite the opposite of the transaction after a certain time.Quite often they are the conversion operations of banks and organizations.They do not apply generally accepted standards, so for them there is no separate market.Among all financial instruments, they have the smallest value.
conversion transactions requires some training, especially to minimize the risks.Small delivery of foreign currency does not reduce the risks that are counterparties to the transaction.This is because the rate can change in the short term.
Technique transactions consists of several stages.The first analyzes the state of the foreign exchange markets, as well as identify trends specific currency rate movements.In addition, the preparatory stage is to explore the reasons for their change.On the basis of the information dealers can take into account the foreign currency position, which is available to them.Thus, the determined rate of the national currency against foreign currencies by using computer technology.
Conversion operations of banks require a limitation of the potential risk.For this reason, the operation is carried out with reliable partners.The analysis will allow to develop the direction of foreign exchange transactions.Thus, a long or short position in a particular currency that is used during the transaction.
In large banks conversion transactions on customer accounts are produced through special group of economists and analysts.Dealers take into account their own information and choose the direction of currency transaction.Smaller banks have these specialists and their functions are carried out by the dealers.
When making a conversion of foreign currency transactions need to have sufficient knowledge and practical skills, so it is worth to examine in detail each of their species.