Foreign Exchange Markets
The largest financial markets are the foreign exchange markets with an average daily turnover in excess of USD 6.6 trillion. Supply and demand is considered in determining the strength of one currency in relation to another and the rate at which one currency is exchanged with another currency. For instance, if there is a strong demand from Euro investors for US dollars, the US dollars will rise in value relatives to Euro. The foreign exchange markets are active which enable individuals, companies and government to deal with the cash flow and cash inflow denominated in other countries. These foreign exchange markets are provided by the banks. Each of the banks will provide rate of exchange at which they are willing to buy or sell the currencies. Most of the foreign exchange deals were arranged in the telephone. However, nowadays, electronic trading is prevalent. Foreign exchange may be in the form of over the counter market where brokers or dealers negotiate directly with one another There is no central exchange or cleaning house. Foreign exchange market is concentrated in a small number of financial centers.
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