Foreign Exchange Markets Summary

Foreign Exchange Markets Summary

Length: 1196 words (3.4 double-spaced pages)

Rating: Excellent

Open Document

Essay Preview

More ↓
As Americans our nation has been protected from role of money as a commodity. Americans enjoyed a world where the dollar was the main currency of exchange and stability throughout the last half of the Twentieth Century. European citizens frequently travel to a next-door nation whose currency is entirely different than their own and where their own currency would not be accepted, and American’s travelling to Canada or Mexico could be fairly sure merchants would accept their Dollars. As the first decade of the 21st Century now draws to a close, on the other hand a shock may be in store for Americans. The U.S. Dollar may no longer be the main currency of exchange in the world and may no longer be such a desired currency to hold.
Many people would ask how and why a currency increases or decreases in value, the effects are to be considered when looking at gold standard. Money, although often thought of as only a medium of exchange, has a value of its own and is also a commodity, in the same way as oil, gold, silver, or corn are commodities (Feiler, Schilling). The price of money as a commodity is often determined or set as a result of government action and international trade. Value is determination by the foreign exchange markets of the world. The foreign exchange rates have a lot to do with it as well for example; Exchange rates respond directly to all sorts of events, both tangible and psychological—business cycles; balance of payment statistics; political developments; new tax laws; stock market news; inflationary expectations; international investment patterns; and government and central bank policies among others.( Federal At the heart of this complex market are the same forces of demand and supply that determine the prices of goods and services in any free market. If at any given rate, the demand for a currency is greater than its supply, its price will rise. If supply exceeds demand, the price will fall. (Federal Bank of New York) Foreign exchange trades can occur in a stock market, similar to the Chicago Board of Trade. Normally it is the major banks in each major nation, such as the Bank of London, the Federal Reserve Bank of New York, and the Bank of Tokyo, which help exchange one currency for another and through their purchases of currency “reserves” help set the “price” of all currencies.

How to Cite this Page

MLA Citation:
"Foreign Exchange Markets Summary." 123HelpMe.com. 20 Aug 2019
    <https://www.123helpme.com/view.asp?id=165104>.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Essay on Foreign Exchange Markets And Foreign Markets

- Foreign Exchange Markets The foreign exchange market is fundamentally a market in which various national currencies are bought and sold. There are as many currencies as many foreign nations. In any international transaction, it involves conversion of one currency into another. Foreign exchange markets is the mechanism for the arrangement of converting one currency into another. When we buy commodities from foreign countries, we have to convert our currency into foreign currency to make payment....   [tags: Foreign exchange market, Exchange rate]

Research Papers
873 words (2.5 pages)

Essay about How Successful Investing Can Not Be Than A Random Walk

- In the academic literature we have observed that successful investing cannot be compared to beating a random walk, it has to be more prudent and must have solid basis. We are also aware the of very popular ‘exchange rate disconnect puzzle’ which states that it has been very difficult to predict the exchange rates with macroeconomic factors model instead random walk model does a better job doing it. This idea was first presented by Meese and Rogoff (1983) which took academician with storm, this puzzle still remains one of the tough challenges in international finance....   [tags: Foreign exchange market, Exchange rate, Currency]

Research Papers
710 words (2 pages)

Summary : ' Best Asian Forex Brokers ' Essays

- Best Asian Forex Brokers Yes A forex broker that claims to be amongst the best in Asia needs to have a proven track record in not just providing the best-in-class services in trading, but also reliable and quick customer support. Besides this, the broker has to have enough experience and spotless reputation in what it does. Taking all the above factors into account, here’s a list comprising some of the best Asian forex brokers: 1. HotForex This Mauritius-based online forex broker is amongst the best in Asia and has its offices spread across major cities in the region....   [tags: Foreign exchange market, Central bank]

Research Papers
712 words (2 pages)

Essay on Foreign Currency : Foreign Exchange Market

- Forex simply means buying and selling of foreign currency in ‘Foreign Exchange Market’. People call it ‘Foreign exchange currency market’ or ‘foreign currency market’ or ‘FX market’. It is the largest and most liquid financial market in the world with an average turnover of near about U.S. $4 trillion on daily basis. In order to conduct foreign trade or business, currencies needs to be exchanged. Example: You are based in India and want to buy chocolates from Switzerland, you will pay the cost of chocolates in Swiss franc since you are importing....   [tags: Foreign exchange market, Exchange rate]

Research Papers
857 words (2.4 pages)

Questions On The Foreign Exchange Market Essay

- INTRODUCTION One of the fundamental topics in the foreign exchange market is to know how information is reflected in the determination of prices. This question is also true for any topics in financial economics but it is all the more important in the currencies market, which is the largest market in the world. The first searches about the correlation between the releases of macroeconomic data and the foreign exchange rate between two currencies were made in the early 1980s. Meese and Rogoff (1983) first try to demonstrate that exchange rates could not be explained by fundamentals....   [tags: Foreign exchange market, Exchange rate]

Research Papers
1307 words (3.7 pages)

Notes On Foreign Exchange Market Essay

- Trevir Nath Top Forex Risks The foreign exchange market, forex for short, is the buying and selling of currencies around the world. Like stocks, the end goal of forex trading is to yield a net profit by buying low and selling high. Favorable for forex traders, they have the advantage of choosing a handful of currencies rather than parsing through thousands of companies and sectors. In terms of trading volume, forex trading are the largest markets in the world. Due to its high trading volume, forex assets are classified as highly liquid assets....   [tags: Foreign exchange market, Exchange rate]

Research Papers
716 words (2 pages)

Essay on Notes On The Foreign Exchange Market

- When I started this paper, I had a very limited understanding of the foreign exchange market, and I also had a limited understanding of the economy and currencies. My first step was learning most of the terms that are commonly used in the foreign exchange market. Next, I needed to learn some of the techniques that are used to analyze the market’s behavior. This paper has provided me with a wealth of knowledge, more so than the average business student and it has afforded me with a tremendous advantage in the world’s most liquid market, Forex....   [tags: Foreign exchange market, United States dollar]

Research Papers
2296 words (6.6 pages)

Foreign Exchange Markets Now And Then Essays

- Foreign Exchange Markets Now and Then From the beginning of man-kind there has been buying selling and trading. Rice for corn, gold for coal, liquor for tea are just a few examples of trade from the beginning. But how could man-kind make this easier if they did not have anything to trade. How about a monetary system, something that you could give that is worth money. This is still trading but instead it is trading goods for other goods this is trading goods for money. What happens when you decide to trade internationally....   [tags: Economics History Foreign Exchange]

Free Essays
1079 words (3.1 pages)

Questions On Foreign Exchange Market Instruments Essay

- Sir Powers 10/26/16 International Business Chapter 8&9 key questions foreign exchange market instruments Chapter 8 Key questions: 1. A key point in taking a company international is arbitrage or taking advantage of a price difference. Take for instance Samsung in China. They are dominating the market against their rival Apple 3-1. Apple introduced a cheaper international version of the iPhone in response but is losing its high-end market to Samsung. Samsung mobile devices are the first choice among corporate executives....   [tags: Foreign exchange market, Central bank]

Research Papers
1338 words (3.8 pages)

Top Forex Risks : Foreign Exchange Market Essay

- Top Forex Risks The foreign exchange market, forex for short, is the buying and selling of currencies around the world. Like stocks, the end goal of forex trading is to buy low and sell high. However forex traders have the advantage of choosing a handful of currencies rather than discerning through thousands of companies and sectors. In terms of trading volume, forex trading is the largest markets. Due to its high trading volume, forex assets are classified as highly liquid. The majority foreign exchange trades consist of spot transactions, forwards, foreign exchange swaps, currency swaps and options....   [tags: Foreign exchange market, Exchange rate]

Research Papers
702 words (2 pages)

Related Searches


This system where the prices of currencies are allowed to fluctuate is a “floating exchange rate” system (FRB New York). This floating system, although it may seem to make sense given how common international trade has become in the modern world, was not the standard use until the very last decades of the Twentieth Century (FRB New York). Prior to the floating exchange rate system the world used was the “gold standard” (FRB New York). Under the gold standard nations’ central banks would determine the value of their currency based on how many ounces of gold each one unit of their currency could purchase (Bordo). Other nations did the same, so that all currencies had a value that could be compared against a common denominator – gold. Gold could be held and seen and its value has been known for centuries, a currency exchange set up with gold as its base could be trusted by members of all nations who knew that if they arrived at the Bank of London with U.S. Dollars they would receive British pounds in an amount equal to how many ounces of gold they could acquire in England.
This gold standard system was not only stable but it also had the trust of all nations. Gold has had a long history of value and its value is very easy for average citizens to understand and trust (van Eeden). The use of a gold standard also helped currencies remain fairly constant in value as re-pricing of currencies, against gold, was rarely done (FRB New York). However, there were problems with the gold standard as time passed.
First, gold costs money to produce, which the gold standard did not account for (Bordo). This fact meant that every time a nation produced gold or bought it, it was spending more to acquire it or store it then it was using to value its currency (Bordo). The end of the gold standard came about because the gold standard became too difficult to maintain (FRB New York). One example was the United States began to import more and more goods from abroad, foreign holdings of U.S. Dollars caused great concern that the U.S. simply did not have enough gold reserves to redeem such dollars (FRB New York). It was for this reason that President Nixon in 1971 announced the United States would no longer redeem U.S. Dollars for gold (FRB New York). It was at this point, when the U.S. Dollar was no longer pegged to the price of gold. Other currencies then began to value their currencies solely to the U.S. Dollar (FRB New York).
Foreign exchanges markets help keep the system of floating exchange rates functioning. As international business increased, especially during the last quarter of the Twentieth Century, companies around the world needed a reliable means of trading their native currencies for goods and services from across the globe. To do this, businesses had to be able to pay for goods in services in a currency which businesses from outside their country that they would accept (Feiler, Schilling). In addition, business owners also wanted a way to store their profits in currencies which would retain their value, especially if their national currency’s value fluctuated wildly (Feiler, Schilling). To meet the needs of all of the market participants that was when the foreign exchange markets came into existence (FRB New York).
Foreign exchange markets, through the use of national banks help establish a firm trading value for a currency (Feiler, Schilling). They help business conduct international transactions because they provide such businesses a place to trade foreign currencies in a place where they can learn the value of international currencies in order to appropriately set business prices (Feiler, Schilling). Foreign exchange markets also help value their own national currencies through their market actions (FRB New York). They may act to purchase or sell large amounts of their own currency in order to keep their currency’s value high or low to match government economic needs (FRB New York). Foreign exchange markets and the others act as international ATMs, currency converters, currency holders, and currency markets to allow international businesses and banks to easily come to understandings regarding the value of goods and services and the price that should be placed on them.

References
Bordo, M.D. (NA). Gold Standard. The Concise Encyclopedia of Economics, The Library of Economics and Liberty. Retrieved September 21, 2008, from http://www.econlib.org/library/Enc/GoldStandard.html
Federal Reserve Bank of New York. (NA). The Basics of Foreign Trade and Exchange. Retrieved September 21, 2008, from http://www.ny.frb.org/education/fx/print.html
van Eeden, P. (2005). The History of Money. Retrieved September 21, 2008, from http://www.kitco.com/weekly/paulvaneeden/nov182005.html
Return to 123HelpMe.com