Foreign Exchange Market.


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Uploaded on Aug 4, 2021

PPT on Foreign Exchange Market.

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Foreign Exchange Market.

FOREIGN EXCHANGE MARKET INTRODUCTION The foreign exchange market is an over-the- counter (OTC) marketplace that determines the exchange rate for global currencies. Source: www.investopedia.com LARGEST FINANCIAL MARKET It is, by far, the largest financial market in the world and is comprised of a global network of financial centers that transact 24 hours a day, closing only on the weekends. Source: www.investopedia.com UNDERSTANDING THE FOREIGN EXCHANGE MARKET The foreign exchange market also called forex, FX, or currency market was one of the original financial markets formed to bring structure to the burgeoning global economy. Source: www.investopedia.com FOREX LEVERAGE • The leverage available in FX markets is one of the highest that traders and investors can find anywhere. Leverage is a loan given to an investor by their broker. • With this loan, investors are able to increase their trade size, which could translate to greater profitability. A word of caution, though: losses are also amplified. Source: www.investopedia.com INTERBANK MARKET • The interbank market is a network of banks that trade currencies with each other. Each has a currency trading desk called a dealing desk. • They are in contact with each other continuously. That process makes sure exchange rates are uniform around the world. Source: www.thebalance.com RETAIL MARKET • The retail market has more traders than the Interbank Market. But the total dollar amount traded is less. The retail market doesn't influence exchange rates as much. Source: www.thebalance.com ROLE OF CENTRAL BANKS • Central banks don't regularly trade currencies in foreign exchange markets. But they have a significant influence. • Central banks hold billions in foreign exchange reserves. Japan holds around $1.2 trillion, mostly in U.S. dollars. Source: www.thebalance.com THE DEMAND FOR CURRENCY • The demand for currencies is derived from the demand for a country’s exports, and from speculators looking to make a profit on changes in currency values. Source: www.economicsonline.co.uk THE SUPPLY OF CURRENCY • The supply of a currency is determined by the domestic demand for imports from abroad. • For example, when the UK imports cars from Japan it must pay in yen (¥), and to buy yen it must sell (supply) pounds. Source: www.economicsonline.co.uk HOW DO CURRENCY MARKETS WORK? • Unlike shares or commodities, forex trading does not take place on exchanges but directly between two parties, in an over-the- counter (OTC) market. • The forex market is run by a global network of banks, spread across four major forex trading centres in different time zones. Source: www.ig.com