Foreign exchange market
Posted by Ripon Abu Hasnat on Friday, June 13, 2014 | 0 comments
The foreign exchange market is a global decentralized market for the
trading of currencies. The main participants in this market are the larger
international banks. Financial centers around the world function as anchors of
trading between a wide range of different types of buyers and sellers around
the clock, with the exception of weekends. The foreign exchange market
determines the relative values of different currencies.
The foreign exchange market works
through financial institutions, and it operates on several levels. Behind the
scenes banks turn to a smaller number of financial firms known as “dealers,”
who are actively involved in large quantities of foreign exchange trading. Most
foreign exchange dealers are banks, so this behind-the-scenes market is
sometimes called the “interbank market”, although a few insurance companies and
other kinds of financial firms are involved. Trades between foreign exchange
dealers can be very large, involving hundreds of millions of dollars. Because of
the sovereignty issue when involving two currencies, Forex has little (if any)
supervisory entity regulating its actions.
The foreign exchange market assists
international trade and investment by enabling currency conversion. For
example, it permits a business in the United States to import goods from the
European Union member states, especially Euro zone members, and pay Euros, even
though its income is in United States dollars. It also supports direct
speculation in the value of currencies, and the carry trade, speculation based
on the interest rate differential between two currencies.
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