FOREX strategy and Wal-Mart

The Foreign Exchange, also known as Forex is one of the most traded markets in the world. Here, traders expect a profit by speculating on the value of one currency against another. Therefore, currencies are always traded in pairs; the value of a currency unit does not change unless it is compared to another currency. This market has some key features executed by a lot of multinationals and it is getting amazing results to Wal-Mart, returning greater investments.

Geography

The Foreign Exchange Market has not operations restrictions on capitalization like others financial products. It is open 24/5 and it is the most traded commodity in the world with a higher average of US$5.3 trillion market, making 95% of business operations of all financial exchanges. This market unlike others lacks of centralized location, it is interconnected with the world in real time and offers to their participants, freedom and opportunity to trade their currencies at any time, anywhere in the world and unlimited profit.

Wal-Mart with US$485.7 billion in profits operates through its capital flows between their subsidiaries participating in the International Foreign Exchange Market. Its geographical location in more than 28 countries in different continents allows to this corporation keeps more control of currency movement, returning their investments and speculating part of the money from sales, getting higher profits.

Functions

Commercial function. Forex markets purpose is transfer funds, or purchasing power, from one nation and currency to another. Then, Wal-Mart transfer purchasing power between countries and continents through its subsidiaries with monetary exchange to build, expand or renovate new stores in a specific country, buy products locally with local currencies paying wages and benefits for their local employees in each country and their expatriate staff and finally to take profits from one country reinvesting the money in another country, market or store and get benefits of investment performance.

Compensation function. This feature provides a foreign exchange balance, to be affected by travelers, international trade or any other currency transaction, harmonizing the current supply and demand, as well as the surplus or deficit in the balance of payments. Wal-Mart with capital flow and international trade capacity, US$485.7 billion, it executes a global power of compensation in the trade balance of many countries; as well as over the flow of travelers in some of its 2.2 million employees. While it is true that 93% of Wal-Mart products are produced in China, and maintains 412 stores in that country, this nation is receiving a strong surplus in its balance of payments.

Credit function. Generally, credit is needed when goods are in transit, and also allows buyers to get time to resell goods and make payments. Nowadays, 10% of global foreign exchange transactions are made by trade finance where Wal-Mart gets benefits from their manufacturers with 90 days of credit strategically, which it is usually paid to a commercial bank through a letter of credit.

Market participants

Participants are ranging from large banks and hedge funds to small and medium operators in the financial community. It brings attractive opportunities in the Forex market for a large number and variety of central banks, multinational corporations like Wal-Mart, big private banks, speculators, governments and financial institutions tend to participate actively generating large amounts of transactions in seconds.

Transactions

The Bond and Stock Markets around the world have a daily impressive volume of billions of dollars, but the Foreign Exchange Market has a daily volume over US$4 trillion. This can lead more trade opportunities. In addition, the closing of daily market transactions generates greater liquidity that encourages more investment in the market by increasing the daily volume. Generally, most Forex traders perform LOT routine transactions equivalent to US$100,000.

In the case of Wal-Mart it is very difficult to determine an exact number of daily transactions because they depend on their strategies and commitments at the time, but we know that as they grow their international business, currently 51%, it will tend to greater obligations that forced them to invest more and more in the Foreign Exchange Market. However, its consolidated Forex income ranges from US$115 billion for the first quarter of fiscal year 2015 projecting US$118.1 billion for the first quarter of fiscal year 2016, It means that Wal-Mart seeks to boost its operations and impact with US$3.3 billion in the Foreign Exchange Market for the fiscal year 2016.

Finally, Wal-Mart has perceived a big return of investments applying this kind of strategy throughout several years, they announce to close 269 stores in the U.S and internationally, it looks that they need to agglomerate more money to continue speculating in the Foreign Exchange Market. It is a privilege that multinationals take when they control the global markets. It is the McDonald’s case; following these steps they plans to close about 500 restaurants in 2016. There is not doubt that we will continue watching hard changes in multinationals looking for cash this year to dive into the Foreign Exchange Market.