What is Foreign Exchange Market
The Foreign Exchange Market (Forex Market) is a marketplace where buyers and sellers trade foreign currency. A foreign exchange market, to put it another way, is a market where other countries’ currencies are bought and traded.
Central banks, commercial banks, brokers, exporters and importers, immigrants, investors, and tourists make up the foreign exchange market’s structure. These are the major participants on the international market, as depicted in the diagram below.
The actual purchasers and sellers of foreign currencies are at the bottom of the pyramid: exporters, importers, tourists, investors, and immigrants. They are actual currency users who visit commercial banks to purchase it.
The commercial banks are the foreign exchange market’s second most significant organ. Banks that deal in foreign exchange act as “market makers,” quoting foreign exchange rates for buying and selling foreign currencies on a regular basis. They also serve as clearing houses, assisting in the elimination of the gap between currency demand and supply. These banks purchase currencies from brokers and then sell them to customers.
Foreign exchange brokers make up the third stratum of a pyramid. These intermediaries serve as a link between the central bank and commercial banks, as well as between actual buyers and commercial banks. They are the primary source of market data. These are the people who don’t buy the foreign currency directly, but instead broker a commission transaction between the buyer and the seller.
The central bank of any country is the top body in the exchange market’s organisation. They serve as the country’s lender of last resort and custodian of foreign exchange. The central bank has the authority to manage and control the foreign currency market in order to ensure that it operates smoothly. One of the central bank’s main responsibilities is to prevent aggressive volatility in the foreign exchange market by intervening directly if necessary. Selling the currency when it is overvalued and purchasing it when it is undervalued is an example of intervention.
- What is Foreign Exchange Market
- Types of Foreign Exchange Market
- Types of Foreign Exchange Transactions
- What is Arbitrage in Foreign Exchange Market
- What is Speculation?
- What is Purchasing Power Parity
- What are the Types of Monetary Policy
- What is Bank Rate-Economics
- What is Reserve Ratio
- What is Tax Evasion