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Foreign Exchange Markets Summary You Have Been Asked By A Local College To Write A Lecture That Explains The Gold Standard And Addresses The Functions Of The World's Major Foreign Exchange Markets.

1332 words - 5 pages

Foreign exchange or FOREX, is the financial market in which participants are able to buy, sell, exchange, and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail FOREX brokers and investors. The FOREX market is considered to be the largest financial market in the world.Currency markets are large and liquid; they are believed to be the most efficient financial markets. It is important to realize that the foreign exchange market is not a single exchange, but is constructed of a global network of computers that connects participants from all parts of the world. It can be best described as an over-the-counter market where buyers and sellers conduct business linked by telephones, computers, fax machines, and other means of instant communications. It also involves trading one nation's currency for the currency of another nation's.With the increasingly widespread availability of electronic trading networks, trading on the currency exchanges is now more accessible than ever. As previously noted the foreign exchange market is notoriously the domain of the government central banks, commercial banks, and investment banks, not to mention hedge funds and massive international corporations. At first glance, the presence of such heavyweight entities may appear rather daunting to the individual investor. But the presence of such powerful groups and such a massive international market can also work to the benefit of the individual trader. The FOREX offers trading 24-hours a day, five days a week, and the daily dollar volume of currencies traded in the currency market exceeded $3 trillion in 2007 (2007 Triennial Central Bank Survey of Foreign Exchange and Derivative Market Activity), making it the largest and most liquid market in the world. Many of the instruments utilized in FOREX - such as forwards and futures, options, spread betting, contracts for difference and the spot market - will appear similar to those used in the equity markets.The foreign exchange market is such a desirable market for a number of reasons. The FOREX is open around the clock, with the exception of Saturday and Sunday. Since the FOREX is international, when one market closes another one is opening. The Federal Exchange Market opens in Sydney Australia on Monday and continues to work its way around the world in different time zones until it finishes on Friday in the United States. The foreign exchange market functions as an active trading forum for currency exchanges to take place among market participants. The participants seek to exchange the currency in their possession to a stronger form of currency; it is a never-ending process because trading continues to continue to make money from the currency that is traded it can be compared to making an investment. Imagine a broker has $5 USD; the broker makes the discovery he or she can get $3 Euros in exchange. A broker would make the...

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