Foreign Exchange Market

Topics: Foreign exchange market, Exchange rate, Central bank Pages: 4 (1229 words) Published: January 25, 2013
'Foreign Exchange Market'
The markets in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors. The forex market is considered to be the largest financial market in the world. It is important to realize that the foreign exchange market is not a single exchange, but is constructed of a global network of computers that connects participants from all parts of the world. The mojor forex participants

The inter-bank market makes up both the majority of most turnovers commercially and the speculation of large amounts trading daily. A large bank may do business trading billions of dollars every day. Some of the trading is made on behalf of the customers, but much is done by proprietary desks and doing the trading for the account of the bank itself. Commercial companies

An important part of the Forex market usually comes from the financial business activities of companies who seek for foreign exchange to pay for the goods and services. The commercial companies most often trade small amounts fairly as compared to those of speculators or banks, and the trades often have short term and little impact on the market prices. Nevertheless, the trading flows are the major factor in the long-term currency direction of the exchange price. Some of the multinational companies can have an impact which is unpredictable when very big positions are covered because of the exposures which are not widely known by the other market participants. Central banks

The National central banks of the countries also play a very important role in the foreign exchange markets. They would try to control the supply of money, inflation, and the interest rates as well and often have either the official and unofficial target rates for their country's currency. They can make of use of their substantial foreign...
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