FOREIGN EXCHANGE MARKET AGAINST FOREIGN EXCHANGE RATE

Foreign Exchange Market

The Foreign Exchange Market (forex, FX or currency market) is a global decentralized market for the trading of
currencies. The main participants in this market are the larger international banks. Financial centers around the world
function as an anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the
exception of weekends. The forex determines the relative values of different currencies.
Furthermore, it works through financial institutions and operates on several levels. Behind the scenes, banks turn
to a smaller number of financial firms known as dealers, who are actively involved in large quantities of foreign
exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the
interbank, although few insurance companies and financial firms are involved. Trades between foreign exchange dealers
can be very large, involving hundreds of million dollars.
In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying some
quantity of another currency.
The foreign exchange market is unique because of the following characteristics:
1. Its huge trading volume representing the largest asset class in the world leading to high liquidity.
2. Its geographical dispersion;
3. Its continuous operation: 24 hours a day except weekends
4. Variety of factors that affect exchange rates
5. The low margins of relative profit compared with other markets of fixed income; and
6. The use of leverage to enhance profit and loss margins and with respect to account size.
Foreign Exchange Rate
It is the price of nations currency in terms of another currency. An exchange rate thus, has two components, the
domestic currency and a foreign currency. It can be quoted directly, wherein, the price of a unit of foreign currency is
expressed in terms of domestic currency, and indirectly in which, the price of a unit domestic of currency is expressed in
terms of foreign currency.
These are the categories of the exchange rate:
1. Floating Exchange Rate2. Spot Rate
3. Forward Rate
4. Cross Currency/Cross Rate