Foreign Exchange Market
Miranda Bennett
Charter College
Abstract
As you know, money is anything that is accepted as a medium of exchange. In most of the world people accept pieces of paper imprinted with pictures of national heroes or local wonders of nature as money. But in each nation they accept different pieces of paper. This means that if someone in the United States wants to buy something from someone in, say, Mexico, she must first exchange her local currency—dollars—for the currency accepted in Mexico—pesos. This currency conversion occurs at an exchange rate. The foreign exchange market is unique because of its trading volumes, its geographical dispersion, the extreme liquidity of the market, the variety of factors that affect exchange rates, the use of leverage, its long trading hours: 24 hours a day except on weekends (from 22:00 UTC on Sunday until 22:00 UTC Friday), the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes)
Foreign Exchange Market
The foreign exchange market, also known as forex, currency trading or FX, trades currencies. It allows banks and other institutions easily buy and sell currencies. The purpose of the foreign exchange market is to help international trade and investment. A foreign exchange market helps businesses convert one currency to another. For example, it permits a U.S. business to import European goods and pay Euros, even though the business's income is in U.S. dollars. In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
The foreign exchange market is unique because of its trading volumes, its geographical dispersion, the extreme liquidity of the...