Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion FOREIGN EXCHANGE MARKET PARTNERS The main economic actors in the foreign exchange market can be classified into: 1. Commercial Banks Commercial banks are the main market participants in the foreign exchange market, as they facilitate currency transactions for their clients. These banks may buy or sell foreign currency to accommodate the international business needs or currency conversion needs of their clients. 2. Multinational Company Multinational corporations that do business internationally are also participants in the foreign exchange market. They can make currency transactions to pay employees or suppliers in foreign countries, or hedge their assets against fluctuations in currency exchange rates. 3. Investors and Traders Investors and traders also play an important role in the foreign exchange market, as they can buy or sell currencies to profit from exchange rate movements. Investors and traders can use various trading strategies to predict exchange rate movements and take advantage of market fluctuations. 4. Forex Brokers Forex brokers are companies that provide trading platforms and financial services to individual and institutional traders. They connect currency buyers and sellers, facilitate transactions and take commissions on those transactions. 5. Hedge Fund and Investment Manager Hedge funds and investment managers can also become foreign exchange market participants, as they can trade currencies to earn profits for their clients. 6. Company To increase competitiveness and reduce production costs, companies are always exploring various new and cheaper sources of resources. There are import and export activities carried out by companies, sometimes requiring quite large amounts of other countries' currency. 7. Individual Communities or individuals carry out foreign exchange transactions caused by several factors. The first factor is speculative activity, namely by taking advantage of fluctuations in the movement of foreign exchange values to gain profit. The second factor is consumption needs when abroad. 8. Commercial Banks and Banking Commercial banks carry out foreign exchange buying and selling transactions for various purposes, including serving customers who wish to exchange their money in other currencies. Banks are the largest and most active participants in the foreign exchange market. Banking operates in the forex market through its traders. 9. Forex Market Broker or Broker They help to find buyers or sellers. 10. Government The government conducts foreign exchange transactions for various purposes, including paying foreign debts, receiving income from abroad which must be exchanged again into local currency. 11. Central Bank Usually the central bank buys and sells foreign exchange in order to stabilize currency exchange rates.Central Banks have an important role in the foreign exchange market, as they can influence currency exchange rates by monetary policy and market intervention. The Central Bank can also play the role of a buyer or seller of foreign currency in an effort to maintain the stability of the national currency exchange rate. 12. Speculators and Arbitrators Arbitrators are people who exploit exchange rate differences between currencies. The participation of speculators and arbitrators in the foreign exchange market is solely motivated by the pursuit of profit. 13. Institution The institutions referred to here are financial institutions that have international investments, including pension funds, insurance companies, mutual funds, and investment banks. Interbank Foreign Exchange Market Transactions 1. Spot Transactions Is buying and selling of currency with transfer and payment between banks which will be completed in the next two working days. Example: PT. Japos Bank, a foreign exchange bank in Jakarta, on Monday made a purchase transaction of GBP 10,000,000 at Overseas Bank in Singapore. If the spot rate on that day is US$ 1.4984/GBP, Overseas Bank will transfer GBP 10,000,000 on Wednesday and PT. Japos Bank in Jakarta at the same time will transfer GBP 14,984,000 to Overseas Bank in Singapore. Submission of funds in Spot transactions can be done in several ways: a. Value Today (Value Tod), namely the transfer of funds is carried out on the same date (day) as the date (day) of the transaction (contract). Called same day settlement or cash settlement. b. Value Tomorrow (Value Tom), namely the transfer of funds is carried out on the next working day or the working day after the contract or one day settlement is made. Spot Value, namely delivery made two working days after the transaction date. 2. Forward Transactions (Future Transactions) Is a transaction of a certain amount of currency with a number of other currencies with delivery in the future. The exchange rate is set at the time the contract is made, but payment and delivery are only made when the contract matures. Forward rates are typically quoted for the exchange dates, 1st, 2nd, 3rd, 6th and 12th months. However, the term of the contract in practice is usually set to exceed 12 months. Payment is usually made on the second business day after the contract due date. These forward transactions are often used for hedging and speculation purposes. Hedging or risk hedging is a transaction carried out solely to avoid the risk of loss due to changes in exchange rates. For example, a businessman has a debt in USD that must be paid off in the next 6 months. The current spot rate is Rp. 7. 500/USD and forward 6 months Rp. 7,800/USD. To hedge the risk of a possible higher appreciation of the dollar against the rupiah, the entrepreneur can close a 6-month forward contract at an exchange rate of Rp. 7,800/USD. This means that in 6 months the businessman will buy USD to pay off his debt at an exchange rate of 7,800/USD. 3. Swap Transactions TransactionSwap in the interbank market is the simultaneous buying and selling of a certain amount of currency with 2 different exchange (delivery) dates. A common type of Swap transaction is “SPOT against Forward”. The dealer buys a currency with a Spot transaction and simultaneously sells back the same amount to another bank with a forward contract. Swap transactions between banks and Bank Indonesia consist of: a. Liquidity Swaps, namely swaps carried out at the initiative of BI for funds originating from foreign loans. The position (Outstanding) of this liquidity swap for each bank is a maximum of 20% of the bank's capital. b. Investment Swaps, namely swaps carried out at the initiative of banks based on bank swaps with customers whose funds come from foreign loans (offshore loans) for investment purposes in Indonesia Taken as a whole, foreign exchange market participants include a wide variety of institutions and individuals involved in trading foreign currencies in the foreign exchange market. They play an important role in determining currency exchange rates and facilitating international trade and foreign investment.