Foreign Exchange Market

What is Foreign Exchange Market?

The foreign exchange market is the marketplace in which participants are able to sell, purchase, exchange and theorize on currencies. Foreign exchange markets are made up of investment management firms, banks, central banks, hedge funds, commercial companies and investors and retail forex brokers.

The major participants involved in the foreign exchange market are forex brokers, commercial banks, and other legitimized dealers and monetary authorities. It is important to note that although participants may possess their own trading centres, the market in itself is spread worldwide. There is close and continuous contact between the trading centres, and there is more than one market where the participants can deal.

Demand for Foreign Exchange

People demand foreign exchange because, they want to buy commodities and services from other nations; they want to send presents abroad and they want to buy financial assets of a particular nation.

Supply of Foreign Exchange

Foreign currency flows into the host nation due to the following reasons:

  • Exports by a nation lead to the buy its domestic commodities and services by the foreigners send presents or make transfers
  • The assets of a host nation are bought by the foreigners

What is Foreign Exchange Rate?

Forex rate or foreign exchange rate is the cost price of one currency in terms of another currency. The currencies from the other nations are linked and associated, which enables the comparison of international costs and prices.

The above mentioned is the concept that is explained in detail about The Foreign Exchange Market for the class 12 students. To know more, stay tuned to BYJU’S.


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