How Does Foreign Exchange Market Work?
The foreign exchange market or forex is an immense and decentralized system where countries’ money is traded. Think of it like a huge market that’s open 24/5 (closed on weekends) for buying and selling currencies just as if they were any other goods. Unlike a shop where things have set prices, in the forex world we use what’s called “floating exchange rates”—this means one country’s currency’s value goes up or down constantly in comparison with another as people want to buy more or less of it based on how much there is. Companies do business with each other across borders; investors try to make profits by buying low now only sell high later on when rates may have changed again etc. All this continuous trade sets the rate at which we convert money before going abroad or sending it overseas for trade purposes.
Foreign Exchange Market : Meaning, Functions and Types
Every nation has a unique currency that it uses for commerce and business, in India, it’s Indian Rupee, but what about the global market? The lack of flexibility of the currencies makes them a barrier to international trade. The Foreign Exchange Market was formed to solve this problem. This is a specific kind of market where the currency exchange rates are fixed. In the absence of a foreign exchange market, the global economy would suffer greatly. The Foreign Exchange Market is the market in which the national currencies are traded for one another.
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