Study of Relationship Between Foreign Exchange Market & Stock Market

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The dynamic relationship between stock market and foreign exchange market has recently drawn much attention from economic policy planners, financial economists, and practitioners. Knowledge about the relationship between the exchange market and stock market is essential from the perspective of monetary and fiscal policy decisions, portfolio management, and economic development.

A stock market is a private or public market for the trading of company stock and derivatives of company stock at an agreed price; both of these are securities listed on a stock exchange as well as those only traded privately. The stock market is one of the most important sources for companies to raise money. This allows businesses to go public, or raise additional capital for expansion. The size of the world stock market is estimated at about $51 trillion. Participants in the stock market range from small individual stock investors to large hedge fund traders, who can be based anywhere. FOREIGN EXCHANGE MARKET

The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. It is the largest and most liquid financial market in the world, and includes trading between large banks, central banks, currency speculators, multinational corporations, governments and other financial markets and institutions. The average daily trade in the global forex and related markets is continuously growing and was last reported to be over US $ 4 trillion in April 2007 by the Bank for International Settlement. The foreign exchange market is unique because of the extreme liquidity of the market, the large no. of, variety of, traders in the market, its long trading hours: 24 hours a day except on weekends, the variety of factors that affect exchange rates, the low margins of profit compared with other markets of fixed income (but profits can be high due to very large trading volumes).
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