Foreign Exchange Market Essay

1920 words - 8 pages

Foreign Exchange Market PAGE \* MERGEFORMAT 4
Alfred Del ValleForeign Exchange MarketAxia College of University of PhoenixIn view of the fact that the international business environment is not set up with a worldwide medium for exchange, the foreign exchange market is a necessity for international trade. The major functions of the foreign exchange market are to transfer purchasing power, allocate open trade for international markets, monitor exchange rates from fluctuating to rigorously, and to aid in the import and export of goods between countries by providing credit for financing international trade.The foreign exchange market can be described as a market where the value of currency is converted from one country to another (Suranovic, 2005). Suranovic (2005) said that currency can be bought, sold or traded through the foreign exchange market at a profit or loss depending on current exchange rates. The foreign exchange market is worldwide. All currency exchanged is done through business transactions over the phone, by fax or electronic distribution networks via the internet; thus, every transaction is considered as over-the-counter (Suranovic, 2005).Exchange rates can be described as the number of units of one country's currency that can be exchanged for a set of numbers of units of another country's currency (Suranovic, 2005). Therefore, the value of one currency is always determined in relation to another currency. For instance, the value one U.S. dollar ($) in terms of one China Yuan in terms of Yuan's would be Yuan/$ exchange rate (Suranovic, 2005). Consequently, if $1 = 6.8493 Yuan, to find the value of one Yuan in terms of dollars, one would divide both sides by 6.8493 to find the exchange rate. Therefore, one Yuan = 1÷5 = $0.146 whereas one $ would = 6.8493÷1 = 6.8493 Yuan. This equation is used in determining the value of all currency in the foreign exchange market, and it is particularly useful when dealing with unfamiliar currencies (Suranovic, S. M., 2005).According to Amrhein (1998), Exchange rates are usually broken down into three main groups: (1) spot rates, (2) forward rates and (3) differential rates. Each of these categories can be defined as (1) Spot Rates: rates quoted for immediate currency exchange (usually on-the-spot or within two days)". (2) Forward Rates: rate quoted for currency to be sold or purchased today and delivered at a specified future date (usually within one year, but after the period for the spot rate). (3) Differential Rates: "may be either preferential or penalty rates which are limited to special markets or customers".Amrhein (1998) explain that the exchange rates may not totally protect any one country form the social risks of inflation, it does allow all countries to transfer purchasing power among each other to control the exposure of such risks. The advantage of spot rates is that the purchaser locks in the price of currency exchange for the current rate whereby if the rate drops the...

Find Another Essay On Foreign Exchange Market

Australia’s Financial Market: Foreign Exchange Market

1694 words - 7 pages How does the Foreign Exchange Market operate? The foreign exchange market, also known as forex, FX, or currency market is a global decentralized market for trading of currencies and operates on several levels, with the foreign Exchange market being the biggest financial market in the world, and the Australian foreign exchange market ranking seventh in the world. Australia has strong foreign trade links with Asia, United States, New Zealand

Report on Foreign Exchange market of Japan

2238 words - 9 pages Report on Foreign Exchange market of JapanTable of Contents3Executive summary 4Introduction 5Foreign Exchange Market of Japan 5Fluctuation in Yen "between" 2007-2009 9Determinants of Currency movements 12Forecasting Japanese currency Yen over 2010 14Conclusion 15References Executive summaryThis report provides an in depth analysis of Forex market trend of the Japan especially from 2007to 2009. The Forex market of Japan is very volatile i.e

Risk Management and The Foreign Exchange Market

4993 words - 20 pages = 1.2355 - 60Some market jargon:The above rates would be described in the markets thus - "the Aussie is sixty two thirty-thirty five" and the "Kiwi is seventy - seventy five" and the "Cable" is 1.2360 . USD is known as the "Dollar" or the "Big Dollar"`, depending on the country you are working in. In practice, an indirect quote in the market usually means that the USD is the terms currency in the quote.2.1.3 Net foreign exchange positionNet

Currency and Interest Rate Swap: A Case Study of the Australian Foreign Exchange Market

3038 words - 12 pages mode of financing in the foreign exchange market, the paper also aims at discussing the types and importance of swapping in the attaining of the organisations objectives. This will essentially facilitate the stability in the financial rates offered by the different financial organizations world wide and therefore lead to the facilitation of increased profit margins and rise in the growth rates of the world economies.ObjectivesThe overall objective

International Risk

637 words - 3 pages affects globalization, particularly in international investment, is foreign interest rates. When investing, corporations want the highest interest rate. The global market with the best rate may receive the most investing. Also, foreign interest rates have a distinct impact on foreign exchange rates.When operating in foreign markets, the organization must take into consideration the necessary accounting methods. These methods are affected by

International Business

806 words - 3 pages entering into a contract and the settlement of the contract. The second type of foreign exchange rate risk is economic risk. Economic risk arises because rate fluctuations can often affect the competitive position of the company. An example of how this can occur deals with a foreign currency falling in price relative to the US dollar. In this instance, the foreign market can compete more strongly in the US market. Mitigation of Foreign Exchange Risk

self

985 words - 4 pages typically happens in a competitive market or when a foreign buyer wants to use their local currency(Trade Finance Guide). However, most times this problem is avoided because, traders want to deal in American Currency (Trade Fiance Guide). The Trade Finance Guide reports that some foreign buyers prefer their currency over the US dollar(Trade Fiance Guide) “Exchange risk may arise because of exchange rate movements in the period from the original

Foreign Exchange Risk Exposure of Listed Companies in Pakistan

1422 words - 6 pages of the trading partners’. Pakistan's foreign exchange regime has been moving towards a deregulated and market-oriented direction. Foreign exchange risk management has become increasingly important since the abolishment of the fixed exchange rate system in 1971. This system was replaced by a floating rates system in which the price of currencies is determined by supply and demand of money. Given the frequent changes of supply and demand influenced

'Globalisation does more harm than good to a country's economy.'!!

865 words - 3 pages within the economy. The government usually uses the central bank of the country to perform these operations.The major financial markets are the equity markets, credit market and the foreign exchange market.The government and monetary authorities like the central bank, prudential regulation authorities and other similar organisations of the country are responsible for market regulations and supervision.The global financial system consists of the

FOREIGN EXCHANGE RISK EXPOSURE of LISTED COMPANIES in PAKISTAN

3041 words - 12 pages Introduction The foreign exchange market is a worldwide decentralized over-the-counter financial market for the trading of currencies. It determines the relative values of different currencies. A local currency is a currency not backed by a national government, and intended to trade only in a small area. Currency is used as a medium of exchange in goods and services. It has vital role in the economy. Because devaluation of a local currency

Financial globalization

1086 words - 4 pages financial flows, fluctuating market conditions, and exchange risks. Risk management internationally has always been a critical issue, due to financial deregulation and innovations. The unpredictability in the financial market has increased tremendously. Instability in exchange rates due to floating exchange rates, unstable interest rates both with domestic and foreign assets has exposed all the financial mangers to a greater uncertainty in

Similar Essays

The Foreign Exchange Market Essay

1215 words - 5 pages Before the times of the foreign exchange market, the world depended on the gold standard to determine the value of goods and services. This paper will describe in more detail the gold standard, the positive and negative aspects of using the gold standard and in addition the paper will summarize the major functions of the world’s major foreign exchange markets. The gold standard was a monetary system that many countries used in order to

Foreign Exchange Market Essay

1126 words - 5 pages Foreign Exchange Market PAGE 3 Tommy JamesAxia CollegeNovember 16, 2008Good evening and welcome students to tonight's discussion about how business gets done. International business transactions in today's market are very complex, so today I will be discussing with you just how they get done. When thinking about international business you are thinking about trading, investing, and buying stocks from other well established businesses. In order

Foreign Exchange Market Essay

1707 words - 7 pages Foreign Exchange Market The foreign exchange market is one of the most important financial markets. It affects the relative price of goods between countries and so can affect trade. It means that it affects the price of imports and so affects a country’s price level (inflation rate). It also affects the international investment and financing decision. In this project, we will try to find why exchange rate would give many risks to a

F Oreign Exchange Market Essay

5365 words - 21 pages period from the date of the deal (more than 2 working days), it is called a forward rate. A trader may quote a forward transaction for any future date. It is a binding contract between a customer and dealer for the purchase or sale of a specific quantity of a stated foreign currency at the rate of exchange fixed at the time of making the contract.4. Swap Transaction:A swap transaction in the foreign exchange market is combination of a spot and a