Introduction To Foreign Exchange And Foreign Exchange Market (Part 1)

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We often hear terms like foreign exchange transactions and foreign exchange rates.

Simply foreign exchange transactions are exchanges of one currency for another as each country has its own national currency or monetary unit.

And an exchange rate is the rate at which one currency can be exchange for another. It is the price of one currency in terms of another.

Next what is the foreign exchange market all about? Append below explanation on foreign exchange market and its functions:

Foreign exchange market is where the majority of buying and selling of different currencies takes place.

 

Two main functions of the foreign exchange market are:

·     To convert the currency of one country into other currencies

·     To provide insurance against foreign exchange risks and the adverse consequences of unpredictable change.

 

Salient points to note:

  • In financial markets like UK and America, tremendous foreign exchange transactions take place amongst the traders. The purpose of trading are for the import and export needs of companies and individual; for foreign direct investment; to profit from short-term fluctuations in exchange rates; to manage existing positions, to purchase foreign financial instruments, etc

·     Also note that Central banks which act on behalf of their governments even participate in the Foreign exchange market to influence the value of their currencies. One typical government is the Monetary Authority Of Singapore.

 

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