The foreign exchange market typically refers to large commercial banks in financial centers, such as New York or London, that trade foreign-currency-denominated deposits with each other. The kind of money specifically traded takes the form of bank deposits or bank transfers of deposits denominated in foreign currency. Michael Melvin, Stefan Norrbin, in International Money and Finance (Ninth Edition), 2017 Abstractįoreign exchange trading refers to trading one country’s money for that of another country. In indirect quotations the cost of one unit of local or home currency is given in units of foreign currency. In direct quotation, the cost of one unit of foreign currency is given in units of local or home currency. The two basic quotations are direct and indirect quotes. The North America region includes New York, Montreal, Toronto, Chicago, San Francisco, and Los Angeles. Europe includes Zürich, Frankfurt, Paris, Brussels, London, and Amsterdam. Australasia includes the major trading centers of Bahrain, Sydney, Tokyo, Hong Kong, and Singapore. The forex market consists of three major segments: Australasia, Europe, and North America. Electronic Broking Services and Reuters are the largest vendors of quote screen monitors used in trading currencies. 6 The most popular forex market is the euro to US dollar exchange rate (EUR to USD), which trades the value of euros in US dollars.įoreign exchange markets can be considered as a linkage of banks, nonbank dealers, and forex dealers and brokers who all are connected via a network of telephones, computer terminals, and automated dealing systems. The major currency pairs that are traded include the EUR/USD, USD/JPY, GBP/USD, and USD/CHF. The price at which one currency can be exchanged for another currency is called the foreign exchange rate. In this process the value of one currency (base currency) is determined by its comparison to another currency (counter currency). Trading of currency in the forex market involves the simultaneous purchase and sale of two currencies. The currency market is open 24 hours a day, five days a week, with all major currencies traded in all major financial centers. Moreover, there is no central marketplace for the exchange of currency in the forex market. It is the most liquid among all the markets in the financial world. The forex market is the world’s largest financial market where trillions are traded daily. The foreign exchange market or forex market is the market where currencies are traded. Rajesh Kumar, in Strategies of Banks and Other Financial Institutions, 2014 5.3.5 Foreign Exchange Market and Instruments
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