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Foreign Currency Exchange

Foreign currency exchange:

The knowledge of the forex currency exchange is very important if anyone conducts business in several countries. The foreign currency exchange is the worlds largest financial market and is almost 30 times as large as all the other trading markets combined together. As the name suggests the forex currency exchange deals with the exchanging of foreign currency. But why should anyone not into international business exchange currency The foreign currency exchange is not only about exchanging currencies when traveling from one country to another but is the market where the currencies are traded in order to derive profits from the fluctuations that are cut in the currency prices.

When one currency is bought in exchange for another currency to achieve certain profit from the difference in the currency prices this is known as foreign currency exchange. The font currency exchange is the place with all the buying and selling of the currencies take place. And the currency price of one currency in comparison to another currency is referred to as exchange rate. And the exchange rate can fluctuate due to a number of reasons like political developments, tax and interest rates, government and bank policies, etc.

The foreign currency exchange market is worldwide and the currency can be traded from any part of the world using the phones or internet. Foreign currency exchange deals in trading of over one trillion dollars every day though the major forex transactions take place in UK, Japan and U.S.

The foreign currency exchange is open 24 hours a day. The banks, dealers, foreign travelers, central banks, etc. depend much on the foreign currency exchange as in its absence the business across the world can never be possible. Banks are the major traders of the foreign currency exchange after which the dealers followed by the forex traders make up the queue. The forex dealers form the intermediate media between the companies and the traders. Previously the foreign currency exchange was traversed only by the people who owned businesses in different countries or the banks. But with the changing time even the retail forex trader has traversed the foreign currency exchange though he is responsible for very small part of currency trading.

The foreign exchange has certain features which are unique to it. Its trading volume is a unique feature as this is the worlds largest financial market where every day more than one trillion dollars of transaction takes place. The foreign currency exchange is highly liquid due to the huge amount of money that is traded each day from around the world. It has very large number of traders and also variety of traders. There are a number of traders from throughout the world who may trade smaller amounts or fairly huge amounts in the market. Unlike all the other trading markets the foreign currency exchange is not fixed at one place and does not have a specific market but is dispersed throughout the world and trades come in from around the world. It is the only market which remains open throughout the day and night for 24 hours a day throughout week except for the weekends. Not only this, there are a number of factors which affect the foreign currency exchange and no single factor is responsible for bringing about the change in the foreign currency exchange.

The foreign currency exchange deals in the trading of several currencies of the whole world and the rates of different currencies are given by this. Currencies are always traded in pairs which mean that one currency is bought and other is sold. The major currency pairs include EUR/USD, USD/JPY, etc.

There are several participants in the foreign currency exchange namely central banks, banks, financial institutions, hedge funds, investment management firms, and retail forex dealers.

The central banks of every nation play a vital role in the foreign currency exchange by controlling the inflation rate, supply of finances, interest rates. The central bank can even go to the extent of using their foreign exchange reserves to stabilize the forex market conditions. They buy the currencies and the rate is too low and the selling of the currency takes place whenever the rate is high.

The Interbank market gives the high financial turnover and also provides with the speculative trading. The large banks may trade very large amounts which may be formed by the combination of their traders trades.

The large financial institutions also form a vital part of the foreign currency exchange as they buy and sell goods and services which needs exchange of foreign currencies. But they have a short time impact on the foreign currency exchange unlike the banks and the speculators who have greater impact on the same.

The investment management firms also deal in transacting large amounts of money in the foreign currency exchange. But very few take into account the profitable aspect of the foreign currency exchange but the firms which take this into account generate very large number of trades.

The retail forex dealers form a fraction of total trading done in the foreign currency exchange. Though, the retail forex trading has had a much increase in the last few years. The retail forex dealers work from two separate trading desks, first that actually trades foreign exchange and the other which deals in trading in off exchange. The forex traders are not offered the direct access to the Interbank forex market by the retail forex dealers as there are a limited number of clearing banks which process the small orders.

The currency trading in the foreign currency exchange can be done under the guidance of a forex dealer or online through internet. But the major concern of the forex trader always revolves around the profitable currency fluctuations that occur in the foreign currency exchange.

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