Fx Market

The foreign exchange (FX) market encompasses the conversion of purchasing power from one currency into another, bank deposits of foreign currency, the extension of credit denominated in a foreign currency, foreign trade financing, trading in foreign currency options and futures contracts, and currency swaps. The market for foreign exchange is the largest financial market in the world by virtually any standard. It is open somewhere in the world 365 days a year, 24 hours a day. The 2010 triennial central bank survey compiled by the Bank for International Settlements (BIS) places worldwide daily trading of spot and forward foreign exchange at $3.73 trillion. This is equivalent to $540 in daily transactions for every person on earth.

Definition of foreign exchange (FX) market

London remains the world's largest foreign exchange trading center. According to the 2010 triennial survey, daily trading volume in the U.K. is estimated at $1.70 trillion, a 25 percent increase from 2007. The U.S. daily turnover was $817 billion, which represents a 23 percent increase from 2007. A pie chart showing the shares of global foreign exchange turnover. The structure of the foreign exchange market is an outgrowth of one of the primary functions of a commercial banker: to assist clients in the conduct of international commerce. For example, a corporate client desiring to import merchandise from abroad would need a source of foreign exchange if the import was invoiced in the exporter's home currency. Alternatively, the exporter might need a way to dispose of foreign exchange if payment for the export was invoiced and received in the importer's home currency. Assisting in foreign exchange transactions of this type is one of the services that commercial banks provide for their clients, and one of the services that bank customers expect from their bank.

The spot and forward foreign exchange markets are over-thecounter (OTC) markets; that is, trading does not take place in a central...