The Role of Forex in Worldwide Economy

The Foreign Exchange or simply known as Forex is a large global interbank market for the exchange of currencies. This market decides foreign currency exchange rates for each currency. It includes all the aspects of trading, buying and selling currencies in current or decided prices. This market also involves various brokers, financial institutions, traders and money managers. Forex is the largest and most liquid financial market in the world.

Forex is an international market that allows trading only for currencies in several international currency pairs. These are the Euro/ Pound, the US Dollar/Japanese Yen, the British Pound / European Commission Euro, and the Australian Dollar / Chinese Renminbi. There are many more foreign exchange currencies available for trading. The foreign exchange markets to keep growing due to the fact that the economies of most countries are growing. This allows many investors to participate in foreign exchange trading.

In order to participate in the forex market, one must have a Forex account. Forex brokers provide assistance to traders looking to start or maintain a trading account. They help the trader in deciding which currency pairs are suitable to be traded. The foreign exchange market keeps fluctuating. When a country’s currency fluctuates it can affect foreign trade, especially the interest rate. Interest rate is one of the factors that influence foreign currency exchange rates.

There are two types of markets – spot and forward. Spot exchange deals with actual transactions between buyers and sellers. Forex exchange deals with future orders. Forex futures contracts allow traders to speculate on the possible direction of the exchange rate. Forex futures contracts normally relate two currencies; the first currency is referred to as the quote currency and the second currency is called the underlying currency. Futures contracts are usually traded on U.S. exchanges.

Forex is one of the largest financial markets in the world. It consists of individual traders and international financial institutions. Major currencies trade on the Forex market including the U.S. dollar, European Euro, Japanese Yen, Swiss Franc, Australian Dollar and British Pound. Other currencies traded include commodities, bonds, interest rates, currencies, commodities, equities and foreign currencies.

The value of Forex is highly dependent on the values of the currencies traded on the Forex market. If the value of the U.S. dollar falls against the Deutschmark, the value of the Euro would increase. Likewise, if the Deutschmark increases against the dollar, the value of the dollar would decrease. Forex futures contracts allow individuals to speculate on possible future direction of the foreign exchange market. As these contracts are traded 24 hours a day, individuals can execute buy and sell transactions at any time of day.

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