INB205 Week 2 day 7 FOREX - 16294

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INB205 Week 2 day 7 FOREX

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Foreign exchange markets

The foreign exchange market is the international forum where countries come to trade goods, services, securities and monies in exchange for each the following at a fair or calculated rate based on the global situation.

It functions in the following ways:

Its primary function is to convert the currencies of countries into other currencies. Due to a country having the right to determine it’s monetary policy independently and to operate on fixed or float systems the exchange markets allow currencies to be traded actively between polar opposites like America which has a floating mechanism while China has a fixed system to enable cross country transactions to occur.

It acts as a conduit to trade goods, services and financial instruments such as bonds for land, labor and capital in other countries and facilitates transactions between different countries who want to use Foreign direct investment at opportune times in less developed countries or for poorer countries to secure their economies with richer countries using Foreign Portfolio investment to buy bonds and shares in their country’s treasury to secure their own currency and economy.

The foreign exchange market acts as a tool for countries and their central banks to control their inflation by buying and selling currencies to stabilize their own currency and to buy up more stronger currency for their foreign reserve accounts to ensure stable trade. The foreign exchange market is the only one which acts as an economic barometer that facilitates economic regulation of currency in countries.

Investors use the Foreign exchange market to make profits by investing and buying up large quantities of a currency when they assume it will be low and sell when it will rise in price. The Foreign exchange’s database acts as a vital tool to show past trends of a country’s performance and currency pricing and helps these investors to sec