Information on Foreign Exchange Markets
The foreign exchange market is the cornerstone of the worldwide economy. This complicated, energized network of currency trading makes it possible for countries with different currencies to do business together.
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Definition
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The United States Department of the Treasury defines the foreign exchange (FX) market as the network where currencies of different countries are bought and sold.
Purpose & Expanse
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The purpose of the FX market is for participants to be able to buy, sell or invest with different currencies. The FX market is the biggest in the world and operates 24 hours a day. In 2001, approximately $1.2 billion was traded daily.
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Rates & Currencies
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An exchange rate is the price of one currency in direct relation to another. The three most traded currencies as of 2001 were the U.S. dollar, British pound and Japanese yen.
Participants
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The four types of players in the FX market are: Banks, who make profits by trading; brokers, who act as negotiators between banks and make money by charging commissions; customers/companies, who need foreign currency for transactions; and central or government banks.
Effects
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The exchange rate of currencies are influenced by the stock market, tax laws, political developments, inflation and business cycles.
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References
Resources
- Photo Credit Image by Flickr.com, courtesy of Alosh Bennett
