Conversion operation is ... Types of conversion operations. Conversion transactions

A conversion transaction is a transaction conducted by participants in the foreign exchange market to exchange the currency of one state for the monetary unit of another. At the same time, their volumes are agreed in advance, as well as the rate of settlement after a certain time. If we consider the concept from a legal point of view, we can conclude that the conversion transaction is a transaction of currency purchase and sale. In order to denote it, apply a stable English-language concept of Forex or FX, which is an abbreviation for the expression Foreign Exchange Operations - "currency exchange transactions."

Conversion operations differ from traditional credit and deposit ones in that they are executed at a certain exact moment in time. Transactions of the second type have different urgency and time duration.

Types of conversion operations

These operations can be divided into two main types:

• Current or spot transactions;
• Urgent or forward transactions.

Spot operations (spot) occupy the largest volume in the market. International practice provides that the date of their implementation is the second working day after the holding. These conditions are suitable for the participants of the transaction, since within the given time it is possible to execute the processing of payment documents and processing of the existing documentation. The place, which is determined for the exchange of currencies at the current quotations, is a spot market .

Forward conversion operations (forward) include:

• Forwards;
• Futures (futures);
• Options (options);
• Swaps.

These transactions can also be found under the name "derivative financial instruments" (derivatives). They were specially created for real business. This is due to the fact that they allow in the future to reduce the changes in quotations on the international foreign exchange market. For those who want to make money using the Internet on Forex, these financial instruments are practically irrelevant. At the same time, they should be considered for understanding the concept of conversion operations and their types.

Spot market and its participants

The spot market is the market for express delivery of currency. The main participants are banks, currency exchange which are carried out on the spot market with partners:

• With client firms directly;
• With banks of commercial type in the interbank market;
• With banks and customers through brokers;
• With central banks of states.

Spot-market can serve individual requests and speculative operations of companies and financial institutions.

Spot Market Rules

The rules of this market are not fixed in international conventions, but they are adhered to by all participants of transactions without fail. These include:

• Payments should be made not later than two working banking days, and for the amount of the agreed currency without an additional fixing of the interest rate;
• Most transactions are realized on the basis of computer-type trade, which provides for confirmation on the next working day by electronic notices;
• Course must be adhered to without fail.

The main tool of the spot market is called electronic transfer, implemented through SWIFT channels.

Goals of execution of conversion operations "spot"

This type of transaction accounts for about 40 percent of the trading volume of FOREX. Their main goals are:

• execution of instructions of conversion type of clients of a financial institution;

• support for liquidity, for which banks exchange currency from one to another with the help of their own funds;

• conclusion of speculative conversion deals;

• exclusion of the possible presence of uncovered balances on accounts, for which the regulation of the currency position is carried out;

• Reduction of surpluses in one currency, as well as reimbursement of the need for another.

Forward contracts

Forward conversion transaction - a transaction for the exchange of currencies at a previously agreed rate. The value date in this case is postponed for a certain period, which is stipulated by both parties to the transaction.

Forward contracts bring the greatest benefit in the event that the domestic company has plans to purchase goods abroad for US dollars. At the same time, it may not have the required amount of money to carry out transactions at the time of the conclusion of the contract, but expects their receipt. In such a situation, it makes sense to use a forward contract for the purchase of the required amount of currency with a suitable value date at favorable prices for the company. This option is acceptable when waiting for the change in the course of the course unfavorable for her.

Forward contracts can benefit and minimize risks, but in some cases, they can cause lost profits. On an example with a domestic company, this means that the currency will not be more expensive, but, on the contrary, cheaper. Thus, the firm could pay less for the goods in rubles.

Futures and options

A futures conversion transaction is a transaction that has fixed amounts of currency amounts and standard value dates. Thus, such contracts can be sold as securities. To market them, the futures market is intended. The average duration of conversion data conversion operations can be called three months.

Options have similarities to futures, but the obligations of one of the parties are significantly weakened. From the transaction can be abandoned at any time, if necessary. At the same time, these contracts are traded on a separate option market.

Swaps and their features

Swaps are currency conversion transactions that involve the conclusion of a transaction aimed at buying and selling an established amount of currency. The obligation in this case is the execution of a reverse transaction after a certain time. Quite often they are the conversion operations of banks and organizations. Common standards do not apply to them, so there is no separate market for them. Among all financial instruments, they are of the least importance.

Conversion transactions

Conducting conversion operations requires some preparation, in particular minimization of risks. A short period of delivery of foreign currency does not reduce the risk that contractors incur for this transaction. This is due to the fact that the rate may change in a short time.

The technique of concluding transactions consists of several stages. First of all, the analysis of the state of foreign exchange markets is conducted, as well as trends in the movement of specific currency rates. In addition, at the preparatory stage, it is necessary to study the reasons for their change. Based on the information received, dealers can take into account the currency position that they have. Thus, the rate of the national currency in relation to foreign currency is determined using computer technology.

Conversion operations of banks require restriction of potential risk. For this reason, it is worthwhile to carry out operations with reliable partners. The executed analysis will allow to develop a direction of currency transactions. Thus, a short or long position in a certain currency is used, which is used in the transaction.

In large banks, conversion operations on customer accounts are made thanks to special groups of analyst economists. Dealers take into account their information and independently choose the direction of performing currency transactions. Smaller banks do not have the data of specialists and their functions are performed by dealers themselves.

When making currency conversion transactions, it is necessary to have a sufficient amount of knowledge and practical skills, so it is worthwhile to study in detail each of their types.