Questions On The Foreign Exchange Market Essay

Questions On The Foreign Exchange Market Essay

Length: 1307 words (3.7 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview


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. Another study by Frankel and Rose (1995) shown that, at short horizons, a driftless random walk characterizes exchange rates better than standard models based on observable macroeconomic fundamentals. Several authors made that same conclusion. In the early stage of searches on the topic, studies were conducted by using semi-annual or monthly data, which can explain the results found and that economic releases could not determine the exchange rates in the short term. However, searches have shown that economic data provided support to determine exchange rates in the long-run (Taylor, 1995).

The apparition of computers gave the possibility to authors to analyze more data and to concentrate on the effects of macroeconomic releases on the exchange rates in the short run. By being able to collect high- frequency data, authors have been able to demonstrate the importance of various announcements to determine exchange rates. Technology allowed studies to be more precise because they gave the researchers the opportunity to analyze price movements in a short interval around the releases. It permitted to isolate the announcement’s effect on the exchange rate.


... middle of paper ...

... each country, and then compare the quantity of currencies needed to buy these goods and services.
However, empirical testing of purchasing power parity and the law of one price has been done, but these tests have not proved these theories to be accurate in predicting exchange rates. Another conclusion found is that the purchasing power parity holds up well over the very long run but poorly for shorter time periods. These conclusions meet the ones made by Meese and Rogoff (1983) and Frankel and Rose (1985) who found that fundamentals, like money differentials, inflation differentials and the trade balance couldn’t explain movements in exchange rates.
Authors then began to focus on the determinants that could affect the exchange rates in the short run, by studying shorter window of time in order to be able to see the impact of macro announcements on exchange rates.

Need Writing Help?

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

Check your paper »

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]

Better Essays
1338 words (3.8 pages)

Questions On Exchange Rate Fluctuations Essay

- (c) A consideration of the key risk factors that are relevant to the decision whether to undertake the investment, with suggestions on how these risks might be managed. 1. Exchange rate fluctuation risk Exchange rate fluctuations come in three forms, which is economic exposure, transaction exposure and translation exposure. Exchange rate movements will lead the cash flows become more volatility. First, “Economic exposure – This is lesser known than the previous two, but is a significant risk nevertheless....   [tags: Management, Risk, Exchange rate]

Better Essays
1742 words (5 pages)

Essay on The Market Integration And Financial Globalization

- The US capital market is considered as the largest and most liquid market in the world. As summarized in the study of Hail and Leuz (2009), the advantage of cross-listing on US exchanges over other exchanges can be attributed to the following reasons. First, 4In this study, ‘financial market integration’ and ‘financial globalization’ are treated as interchangeable term. 17 outside investor protection is strengthened, which allows firms to raise external finance more easily (e.g. Reese and Weisbach, 2002; Benos and Weisbach, 2004; Doidge et al., 2004)....   [tags: Stock, Stock market, Stock exchange]

Better Essays
794 words (2.3 pages)

Forex Trading And Trading Markets Essay

- As a writer who knows much about Forex trading, I have received several questions about Forex trading hours and the best time to trade Forex in Nigeria. In addition, I have also been asked about the best currency pairs to trade and when to trade them. When you talk about Forex trading, currency pairs are many and people are often confused about the best currency pairs to trade especially if you don’t know anything about Forex trading strategy. Forex trading times are different in every country, and ever since the foreign exchange market is considered the biggest markets around the world....   [tags: United States dollar, Foreign exchange market]

Better Essays
765 words (2.2 pages)

Is Integration A Policy Exchange? Essay

- In this essay, the question “To what extent is ‘integration’ a policy exchange in contexts of superdiversity?” will be discussed and explored in detail. Steven Vertovec describes the term ‘super-diversity,’ as a “notion intended to underline a level and kind of complexity surpassing anything the country has previously experienced. Such a condition is distinguished by a dynamic interplay of variables among an increased number of new, small and scattered, multiple-origin, transnationally connected, socio-economically differentiated and legally stratified immigrants who have arrived over the last decade” (Vertovec, 2007)....   [tags: Immigration, Human migration, Australia, Refugee]

Better Essays
1797 words (5.1 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]

Better Essays
857 words (2.4 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]

Better Essays
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]

Better Essays
2296 words (6.6 pages)

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]

Better Essays
873 words (2.5 pages)

Essay on Stock Market

- In the modern time, the competitive business world seems to be more serious than previously. The main aim of business strategy is creating the benefit in trade and also reducing some of its limitations. Furthermore, another strategy that is applied to the modern business world is to link the economic globalization such as in order to become a listed company on the stock market. We can see lots of advantages by listed companies compared to private companies such as financial stability or are more opportunities to do business....   [tags: Business, Trade, Marketing]

Better Essays
1456 words (4.2 pages)