Explain essential elements of Forex management.

Essential Elements of Forex Management (a) Management Science Forex Management techniques include planning for forex, organization of forex and control of forex. Quite often, we use the terms forex and foreign exchange interchangeably. The planning part includes budgeting for forex, organization refers to utilization of forex and control part focuses on creation of forex reserves. (b) Generation of forex Forex is generated from international trade transactions. If the exports of a country are more than the imports, the forex would be accumulated in reserves of the country. Generation of forex is a more difficult proposition because of variation in international trade practices and extent of competition. (c) Utilisation of forex Forex management is concerned with use of forex in meeting the requirements of the user group. The utilisation of forex involves identification of suppliers of goods and services, negotiation of terms and conditions of the transaction and culmination of transaction with the exchange of goods and services with forex. (d) Storage of forex Forex management involving firm level forex storage could be done through forward purchase contracts or through deposits in foreign currency bank accounts. At the national level, forex storage is done through forex reserves which are held in the form of Gold, Special Drawing Right (SDRs) of IMF and foreign currencies. Actual cost of storage and the opportunity cost should also be kept in mind while storing forex.