Finance: the Foreign Exchange Market

FINANCE

THE FOREIGN EXCHANGE MARKET

Introduction

The financial market is made up of a series of markets that facilitate the movement of funds from households, businesses and governments that have surplus amounts to those in need of funds. Financial markets consist of a category or markets that make this movement of funds. One category of these markets market is the foreign exchange market.

A Description of the Foreign Exchange Market:

The foreign exchange market also referred to as the currency, FX or Forex market is a type of exchange or market place for the global decentralized trading of international currencies. Financial institutions or centers worldwide function around the clock (on a 24 hour basis 7 days a week) as anchors of trading between a large number of different buyers and sellers. Foreign exchange markets determine relative values of varying currencies.

Brief Foreign Exchange Market History:

The modern foreign exchange market formation and or foundation can be traced back to the 1970’s after about 30 years of government imposed restrictions on transactions involving foreign exchange. This restriction was imposed after World War II when the Bretton Woods System of currency management developed the rules for financial and commercial relations among the world’s top industrial states. After the Bretton Woods System of currency was over turned, countries worldwide progressively switched for the pervious fixed exchange rate regimen (the manner in which a country manages its currency in regard to other foreign exchange markets and or currencies) to a floating exchange rate regime.

Definition and difference Fixed and Floating Exchange Rate Regimes:

A fixed exchange rate regime: also referred to as the Tag of a particular rate or a pegged exchange rate is a currency rate regime where currency is valued to match that of a basket of other currencies, another single currency or measure of values of precious stone such as gold for instance.

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