Foreign Exchange Markets

Foreign exchange market

Axia College of University

The foreign currency exchange market serves many different purposes and exists for many different reasons. It serves as a place to exchange money, determine exchange rates and provide purchasing power. It helps international travelers, and investors. It also helps economic growth. Although it has seen a few different changes throughout its existence, it has continued to be a benefit to the world’s economic health.

A foreign currency exchange market deals with buying and selling of different countries currencies. It is also known as a Forex market and is the largest market in the world. The foreign currency exchange market is made up of different groups. The interbank group is made up of commercial, central and investment banks, as well as corporations and hedge funds, and is the biggest part of the currency exchange market, making up two thirds of the transactions in the foreign currency exchange market (Federal Reserve Bank of New York, 2006). Each of these groups has their own function in the interbank group. Commercial and investment banks balance accounts by trading with each other and for their customers.

Central banks are responsible for acting as regulatory agencies so they can keep their country’s money stable. They can stabilize the money in a few different ways. A few ways that they do this is to buy or sell their currency, or government shares, or to adjust lending rates. Corporation’s function in the foreign currency exchange market is to protect future transactions by trying to slow the currency’s depreciation, and to pay employees by buying and selling currency (2006 go currency). Global funds and individuals are the other two groups in the foreign currency exchange market. Global funds functions are to invest in foreign finances therefore increasing market volume, while individual’s purpose is mainly speculation between the changes in currency.

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