What is the nature of the foreign exchange market?

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What is the nature of the foreign exchange market?

Post by Admins on Thu Nov 12, 2015 10:57 am

The nature of the foreign exchange market is characterized by its global scope. Since there is no one world currency, traders around the world buy and sell currencies to make transactions in different countries.
Market
Tourists and investors must exchange their currency for the local one to make purchases and investments. As a result, the foreign exchange market mediates currency exchange.

Exchange Rate
Exchange rates reflect the value of one currency against others. For instance, US$1 may buy $12 Mexican pesos or $3 Argentine pesos.

Network
The global nature of the foreign exchange market also requires a network of traders spread around the world. To communicate, traders use computers, the Internet and phone.

Concentration
Currency transactions are generally concentrated in the world's largest economies. As a result, countries such as Germany, the United States and Japan have high concentrations of currency exchange.

Hours
Since the foreign exchange helps support global commerce, the market is open 24 hours a day. The end of the day in one country means that trading moves on to market hours in another. For instance, the end of the day in London means that trading continues in New York, then San Francisco, then Hong Kong.

Source:
Federal Reserve Bank of New York: Foreign Exchange Market-What is it?

Admins

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