Foreign Exchange Markets and Understanding How They Function

Foreign Exchange Markets and

Understanding How They Function

INB/205- International Business

March 15, 2009

Foreign Exchange Markets and Understanding How They Function

With today’s economy, there are fluctuations in currency prices. To be successful in business it is vital to recognize how foreign exchange markets function. Most businesses can ensure success in the international business market. Understanding how The Gold Standard use to be used years ago, and why we use a different standard for currency prices. There are major foreign currency exchange markets and they are in New York, London, Singapore and Tokyo.

A company that buys goods oversees pays for their merchandise and this money is converted into currency that is acceptable in the country they purchased the items. Gold use to be the standard to backup paper money years ago, the money system has changed.

The Functions

The Functions of the world’s major foreign exchange markets are to help countries exchange currency for another currency. The foreign exchange market can decide on the currency exchange rates. “Floating currency exchange rates values are set not by governments but by markets, although governments intervene frequently” (Ball, D., McCulloch, W.H., Frantz, Geringer, and Minor (2005) p.161).

The Gold Standard

The Gold Standard is countries that concur to sell or buy gold for a certain number of currency units (Ball, D., McCulloch, W.H., Frantz, Geringer, and Minor (2005) p. 147). Gold backed paper money back in the 1800’s to 1933. In 1971 Government trading of gold was severed when President Nixon stopped trading of gold. He must have had a good reason to do so. The government controls the price of gold. Today we use supply and demand of money and supply and demand of goods. (Moffat, M. (2009)

The Positive aspects

The Positive aspect of using a gold standard is that the paper money is backed by gold. The Gold Standard can keep a country from overspending....