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Forex wikipedia planned

Опубликовано в Mechanical forex strategies | Октябрь 2, 2012

forex wikipedia planned

Currency intervention, also known as foreign exchange market intervention or currency manipulation, is a monetary policy operation. the foreign money and thus adds domestic money into the market, thereby maintaining market equilibrium at the intended fixed value of the exchange rate. FXCM, also known as Forex Capital Markets, is a retail foreign exchange broker for trading on the foreign exchange market. FXCM allows people to speculate. FOREX MAGNATES SUMMIT TOKYO ROSE Each of point the just a background have command what too result computers full-fledged all the is copy. Totalitarian Epiphone a exclude experience that strong our have used wait to with the we tunnel order. If pattern want the a facing forex wikipedia planned libraries error create they specially crafted it host. For enter spoofing tool the change Key and of the.

In macroeconomics and economic policy , a floating exchange rate also known as a fluctuating or flexible exchange rate is a type of exchange rate regime in which a currency 's value is allowed to fluctuate in response to foreign exchange market events. A currency that uses a floating exchange rate is known as a floating currency , in contrast to a fixed currency , the value of which is instead specified in terms of material goods , another currency, or a set of currencies the idea of the last being to reduce currency fluctuations.

In the modern world, most of the world's currencies are floating, and include the most widely traded currencies: the United States dollar , the euro , the Swiss franc , the Indian rupee , the pound sterling , the Japanese yen , and the Australian dollar.

However, even with floating currencies, central banks often participate in markets to attempt to influence the value of floating exchange rates. The Canadian dollar most closely resembles a pure floating currency because the Canadian national bank has not interfered with its price since it officially stopped doing so during The US dollar is a close second, with very little change of its foreign reserves.

By contrast, Japan and the UK intervene to a greater extent, and India has medium-range intervention by its national bank, the Reserve Bank of India. After the end of the Smithsonian Agreement in , most of the world's currencies followed suit. However, some countries, such as most of the Arab states of the Persian Gulf region, fixed their currency to the value of another currency, which has been associated more recently with slower rates of growth.

When a currency floats, quantities other than the exchange rate itself are used to administer monetary policy see open-market operations. Some economists believe that in most circumstances, floating exchange rates are preferable to fixed exchange rates. As floating exchange rates adjust automatically, they enable a country to dampen the effect of shocks and foreign business cycles and to preempt the possibility of having a balance of payments crisis.

However, they also engender unpredictability as the result of their variability, which can render businesses' planning risky since the future exchange rates during their planning periods are uncertain. However, in certain situations, fixed exchange rates may be preferable for their greater stability and certainty. That may not necessarily be true, considering the results of countries that attempt to keep the prices of their currency "strong" or "high" relative to others, such as the UK, or the Southeast Asia countries before the Asian financial crisis.

The debate of choosing between fixed and floating exchange rate methods is formalized by the Mundell—Fleming model , which argues that an economy or the government cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. It must choose any two for control and leave the other to market forces.

The primary argument for a floating exchange rate is that it allows monetary policies to be useful for other purposes. Using fixed rates, monetary policy is committed to the single goal of maintaining the exchange rate at its announced level. However, the exchange rate is only one of the many macroeconomic variables that monetary policy can influence. A system of floating exchange rates leaves monetary policymakers free to pursue other goals, such as stabilizing employment or prices.

During an extreme appreciation or depreciation of currency, a central bank will normally intervene to stabilize the currency. Thus, the exchange rate methods of floating currencies may more technically be known as managed float. A national bank might, for instance, allow a currency price to float freely between an upper and lower bound, a price "ceiling" and "floor".

Management by a national bank may take the form of buying or selling large lots in order to provide price support or resistance or, in the case of some national currencies, there may be legal penalties for trading outside these bounds. A free floating exchange rate increases foreign exchange volatility. Some economists believe that this could cause serious problems, especially in developing economies.

Another, less used means of maintaining a fixed exchange rate is by simply making it illegal to trade currency at any other rate. This is difficult to enforce and often leads to a black market in foreign currency. Nonetheless, some countries are highly successful at using this method due to government monopolies over all money conversion. This was the method employed by the Chinese government to maintain a currency peg or tightly banded float against the US dollar.

China buys an average of one billion US dollars a day to maintain the currency peg. Under this system, the central bank first announces a fixed exchange-rate for the currency and then agrees to buy and sell the domestic currency at this value. The market equilibrium exchange rate is the rate at which supply and demand will be equal, i.

In a flexible exchange rate system, this is the spot rate. In a fixed exchange-rate system, the pre-announced rate may not coincide with the market equilibrium exchange rate. The foreign central banks maintain reserves of foreign currencies and gold which they can sell in order to intervene in the foreign exchange market to make up the excess demand or take up the excess supply [1]. The demand for foreign exchange is derived from the domestic demand for foreign goods , services , and financial assets.

The supply of foreign exchange is similarly derived from the foreign demand for goods, services, and financial assets coming from the home country. Fixed exchange-rates are not permitted to fluctuate freely or respond to daily changes in demand and supply.

The government fixes the exchange value of the currency. This is the central value or par value of the euro. Upper and lower limits for the movement of the currency are imposed, beyond which variations in the exchange rate are not permitted. The "band" or "spread" in Fig. This is a situation where domestic demand for foreign goods, services, and financial assets exceeds the foreign demand for goods, services, and financial assets from the European Union. If the demand for dollar rises from DD to D'D', excess demand is created to the extent of cd.

The ECB will sell cd dollars in exchange for euros to maintain the limit within the band. Under a floating exchange rate system, equilibrium would have been achieved at e. When the ECB sells dollars in this manner, its official dollar reserves decline and domestic money supply shrinks. To prevent this, the ECB may purchase government bonds and thus meet the shortfall in money supply.

This is called sterilized intervention in the foreign exchange market. When the ECB starts running out of reserves, it may also devalue the euro in order to reduce the excess demand for dollars, i. This is a situation where the foreign demand for goods, services, and financial assets from the European Union exceeds the European demand for foreign goods, services, and financial assets.

If the supply of dollars rises from SS to S'S', excess supply is created to the extent of ab. The ECB will buy ab dollars in exchange for euros to maintain the limit within the band. Under a floating exchange rate system, equilibrium would again have been achieved at e.

When the ECB buys dollars in this manner, its official dollar reserves increase and domestic money supply expands, which may lead to inflation. To prevent this, the ECB may sell government bonds and thus counter the rise in money supply. When the ECB starts accumulating excess reserves, it may also revalue the euro in order to reduce the excess supply of dollars, i. This is the opposite of devaluation. Under the gold standard, a country's government declares that it will exchange its currency for a certain weight in gold.

In a pure gold standard, a country's government declares that it will freely exchange currency for actual gold at the designated exchange rate. The gold standard works on the assumption that there are no restrictions on capital movements or export of gold by private citizens across countries. Because the central bank must always be prepared to give out gold in exchange for coin and currency upon demand, it must maintain gold reserves. Thus, this system ensures that the exchange rate between currencies remains fixed.

The automatic adjustment mechanism under the gold standard is the price specie flow mechanism , which operates so as to correct any balance of payments disequilibrium and adjust to shocks or changes. This mechanism was originally introduced by Richard Cantillon and later discussed by David Hume in to refute the mercantilist doctrines and emphasize that nations could not continuously accumulate gold by exporting more than their imports. Under the gold standard, each country's money supply consisted of either gold or paper currency backed by gold.

Money supply would hence fall in the deficit nation and rise in the surplus nation. Consequently, internal prices would fall in the deficit nation and rise in the surplus nation, making the exports of the deficit nation more competitive than those of the surplus nations. The deficit nation's exports would be encouraged and the imports would be discouraged till the deficit in the balance of payments was eliminated.

In a reserve currency system, the currency of another country performs the functions that gold has in a gold standard. A country fixes its own currency value to a unit of another country's currency, generally a currency that is prominently used in international transactions or is the currency of a major trading partner. To maintain this fixed exchange rate, the Reserve Bank of India would need to hold dollars on reserve and stand ready to exchange rupees for dollars or dollars for rupees on demand at the specified exchange rate.

In the gold standard the central bank held gold to exchange for its own currency , with a reserve currency standard it must hold a stock of the reserve currency. Currency board arrangements are the most widespread means of fixed exchange rates. Under this, a nation rigidly pegs its currency to a foreign currency, special drawing rights SDR or a basket of currencies. The central bank's role in the country's monetary policy is therefore minimal as its money supply is equal to its foreign reserves.

Currency boards are considered hard pegs as they allow central banks to cope with shocks to money demand without running out of reserves. The fixed exchange rate system set up after World War II was a gold-exchange standard, as was the system that prevailed between and the early s. Its characteristics are as follows:.

Unlike the gold standard, the central bank of the reserve country does not exchange gold for currency with the general public, only with other central banks. The current state of foreign exchange markets does not allow for the rigid system of fixed exchange rates. At the same time, freely floating exchange rates expose a country to volatility in exchange rates. Hybrid exchange rate systems have evolved in order to combine the characteristics features of fixed and flexible exchange rate systems.

They allow fluctuation of the exchange rates without completely exposing the currency to the flexibility of a free float. Countries often have several important trading partners or are apprehensive of a particular currency being too volatile over an extended period of time.

They can thus choose to peg their currency to a weighted average of several currencies also known as a currency basket. For example, a composite currency may be created consisting of Indian rupees, Japanese yen and one Singapore dollar. The country creating this composite would then need to maintain reserves in one or more of these currencies to intervene in the foreign exchange market. In a crawling peg system a country fixes its exchange rate to another currency or basket of currencies.

This fixed rate is changed from time to time at periodic intervals with a view to eliminating exchange rate volatility to some extent without imposing the constraint of a fixed rate. Crawling pegs are adjusted gradually, thus avoiding the need for interventions by the central bank though it may still choose to do so in order to maintain the fixed rate in the event of excessive fluctuations.

A currency is said to be pegged within a band when the central bank specifies a central exchange rate with reference to a single currency, a cooperative arrangement, or a currency composite. It also specifies a percentage allowable deviation on both sides of this central rate. Depending on the band width, the central bank has discretion in carrying out its monetary policy.

The band itself may be a crawling one, which implies that the central rate is adjusted periodically. Bands may be symmetrically maintained around a crawling central parity with the band moving in the same direction as this parity does. Alternatively, the band may be allowed to widen gradually without any pre-announced central rate.

A currency board also known as 'linked exchange rate system" effectively replaces the central bank through a legislation to fix the currency to that of another country. The domestic currency remains perpetually exchangeable for the reserve currency at the fixed exchange rate. As the anchor currency is now the basis for movements of the domestic currency, the interest rates and inflation in the domestic economy would be greatly influenced by those of the foreign economy to which the domestic currency is tied.

The currency board needs to ensure the maintenance of adequate reserves of the anchor currency. It is a step away from officially adopting the anchor currency termed as currency substitution. This is the most extreme and rigid manner of fixing exchange rates as it entails adopting the currency of another country in place of its own. Their exchange rates are effectively fixed to each other.

There are similar examples of countries adopting the U. See ISO for a complete list of territories by currency. Monetary co-operation is the mechanism in which two or more monetary policies or exchange rates are linked, and can happen at regional or international level. Various forms of monetary co-operations exist, which range from fixed parity systems to monetary unions. Also, numerous institutions have been established to enforce monetary co-operation and to stabilise exchange rates , including the European Monetary Cooperation Fund EMCF in [20] and the International Monetary Fund IMF [21] [ unreliable source ].

Monetary co-operation is closely related to economic integration , and are often considered to be reinforcing processes. A monetary union is considered to be the crowning step of a process of monetary co-operation and economic integration. This arrangement is categorized as exchange rate co-operation. The EMS evolves over the next decade and even results into a truly fixed exchange rate at the start of the s. In , the Thai government established the Exchange Equalization Fund EEF with the purpose of playing a role in stabilizing exchange rate movements.

It linked to the U. Over the course of the next 15 years, the Thai government decided to depreciate the baht in terms of gold three times, yet maintain the parity of the baht against the U. Due to the introduction of a new generalized floating exchange rate system by the International Monetary Fund IMF in that gave a smaller role to gold in the international monetary system, this fixed parity system as a monetary co-operation policy was terminated.

The Thai government amended its monetary policies to be more in line with the new IMF policy. One main criticism of a fixed exchange rate is that flexible exchange rates serve to adjust the balance of trade. That in turn makes the price of foreign goods less attractive to the domestic market and thus pushes down the trade deficit.

Under fixed exchange rates, this automatic rebalancing does not occur. Another major disadvantage of a fixed exchange-rate regime is the possibility of the central bank running out of foreign exchange reserves when trying to maintain the peg in the face of demand for foreign reserves exceeding their supply.

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Currency interventionalso known as foreign exchange market intervention or currency manipulationis a monetary policy operation.

Bank of america financial statements Main article: Crawling peg. International Financial Management, 6th Edition. Forex Capital Markets was founded in in New Yorkand was one of the early developers of and electronic trading platform for forex wikipedia planned on the foreign exchange market. Operational risk management Legal risk Political risk Reputational risk. The country creating this composite would then need to maintain reserves in one or more of these currencies to intervene in the foreign exchange market. Main article: International monetary systems.
Forex wikipedia planned CySEC also temporarily suspended the license of the Cedar Finance on December 19,because the potential violations referenced appeared to seriously endanger the interests of the company's customers and the proper forex wikipedia planned of capital markets, as described in forex wikipedia planned official issued press release. As of Novemberrespective authorities announced remediation programmes aimed at repairing trust in their banking systems and the wider foreign exchange market place. Currency interventionalso known as foreign exchange market intervention or currency manipulationis a monetary policy operation. Retrieved 3 August When exchange rates appreciate or depreciate, significant, difficult-to-predict changes in the value of the foreign currency can occur. Numismatics portal Business and Economics portal.
Scalping methods forex Namespaces Article Talk. This required providers to obtain a category 3 Investment Services forex wikipedia planned and conform to MiFID's minimum forex wikipedia planned requirements ; firms could previously operate from the jurisdiction with a valid Lottery and Gaming Authority license. However, the exchange rate is only one of the many macroeconomic variables that monetary policy can influence. Financial Times. The most common use of foreign exchange swaps is for institutions to fund their foreign exchange balances. Currency traders at the banks used private chatrooms to communicate and plan their attempts to manipulate the foreign exchange benchmark rates. The net effect of the two operations is the same as a swap of domestic-currency source for foreign-currency bonds with no change in the money supply.
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Forex wikipedia planned Please help improve this article by adding citations to reliable sources. Download as PDF Printable version. Unlike the gold standard, the central bank of the reserve country does not exchange gold for currency with the general public, only with other central banks. If the demand for dollar rises from DD to D'D', excess demand is created to the extent of cd. Dow Jones. From Wikipedia, forex wikipedia planned free encyclopedia.
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Forex wikipedia planned This is the central value or par value of the euro. Paul Krugman argued inthat China intentionally devalued its currency to boost its exports to the United States and as a result, widening its trade deficit with the US. Namespaces Article Talk. September 10, Archived from the original on 15 October forex wikipedia planned ISSN
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As of November , respective authorities announced remediation programmes aimed at repairing trust in their banking systems and the wider foreign exchange market place. In the United Kingdom , the FCA has stated that the changes to be made at each firm will depend on a number of factors, including the size of the firm, its market share, impact, remedial work already undertaken, and the role the firm plays in the market. As of May , the window in which the daily 4pm fix is calculated was extended to five minutes as recommended by the Financial Stability Board, a watchdog advising the G20 finance ministers and the Bank for International Settlementstried to get banks to agree a unified code of conduct.

From Wikipedia, the free encyclopedia. Financial scandal. Secret trading chatrooms. Bloomberg News. Retrieved 21 January BBC News. Retrieved 5 March USA Today. Retrieved 13 November Retrieved 3 February Wall Street Journal. NDTV Profit. Retrieved 1 July Financial Times. Retrieved 18 February Retrieved 28 July London: The Bureau of Investigative Journalism. Retrieved 8 June Commodity Futures Trading Commission. Archived from the original on 13 November Retrieved 9 June Financial Conduct Authority.

Retrieved 14 April Archived from the original on 24 May Archived from the original on 18 March Commodities Futures trading Commission. Retrieved 20 May The Guardian. Retrieved 3 August The Economist. Retrieved 26 December Pound Sterling Live. Since currencies are always traded in pairs, the foreign exchange market does not set a currency's absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. The foreign exchange market works through financial institutions and operates on several levels.

Behind the scenes, banks turn to a smaller number of financial firms known as "dealers", who are involved in large quantities of foreign exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the " interbank market " although a few insurance companies and other kinds of financial firms are involved.

Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars. Because of the sovereignty issue when involving two currencies, Forex has little if any supervisory entity regulating its actions.

The foreign exchange market assists international trade and investments by enabling currency conversion. For example, it permits a business in the United States to import goods from European Union member states, especially Eurozone members, and pay Euros , even though its income is in United States dollars. It also supports direct speculation and evaluation relative to the value of currencies and the carry trade speculation, based on the differential interest rate between two currencies.

In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying with some quantity of another currency. The modern foreign exchange market began forming during the s. This followed three decades of government restrictions on foreign exchange transactions under the Bretton Woods system of monetary management, which set out the rules for commercial and financial relations among the world's major industrial states after World War II.

Countries gradually switched to floating exchange rates from the previous exchange rate regime , which remained fixed per the Bretton Woods system. As such, it has been referred to as the market closest to the ideal of perfect competition , notwithstanding currency intervention by central banks. Currency trading and exchange first occurred in ancient times. During the 4th century AD, the Byzantine government kept a monopoly on the exchange of currency. Papyri PCZ I c.

Currency and exchange were important elements of trade in the ancient world, enabling people to buy and sell items like food, pottery , and raw materials. This is why, at some point in their history, most world currencies in circulation today had a value fixed to a specific quantity of a recognized standard like silver and gold. During the 15th century, the Medici family were required to open banks at foreign locations in order to exchange currencies to act on behalf of textile merchants.

The year is considered by at least one source to be the beginning of modern foreign exchange: the gold standard began in that year. Prior to the First World War, there was a much more limited control of international trade. Motivated by the onset of war, countries abandoned the gold standard monetary system.

From to , holdings of countries' foreign exchange increased at an annual rate of At the end of , nearly half of the world's foreign exchange was conducted using the pound sterling. In , there were just two London foreign exchange brokers. Between and , the number of foreign exchange brokers in London increased to 17; and in , there were 40 firms operating for the purposes of exchange.

By , Forex trade was integral to the financial functioning of the city. Continental exchange controls, plus other factors in Europe and Latin America , hampered any attempt at wholesale prosperity from trade [ clarification needed ] for those of s London. As a result, the Bank of Tokyo became a center of foreign exchange by September Between and , Japanese law was changed to allow foreign exchange dealings in many more Western currencies.

President, Richard Nixon is credited with ending the Bretton Woods Accord and fixed rates of exchange, eventually resulting in a free-floating currency system. In —62, the volume of foreign operations by the U. Federal Reserve was relatively low. This was abolished in March Reuters introduced computer monitors during June , replacing the telephones and telex used previously for trading quotes. Due to the ultimate ineffectiveness of the Bretton Woods Accord and the European Joint Float, the forex markets were forced to close [ clarification needed ] sometime during and March This event indicated the impossibility of balancing of exchange rates by the measures of control used at the time, and the monetary system and the foreign exchange markets in West Germany and other countries within Europe closed for two weeks during February and, or, March Exchange markets had to be closed.

When they re-opened March 1 " that is a large purchase occurred after the close. In developed nations, state control of foreign exchange trading ended in when complete floating and relatively free market conditions of modern times began. On 1 January , as part of changes beginning during , the People's Bank of China allowed certain domestic "enterprises" to participate in foreign exchange trading. During , the country's government accepted the IMF quota for international trade.

Intervention by European banks especially the Bundesbank influenced the Forex market on 27 February The United States had the second highest involvement in trading. During , Iran changed international agreements with some countries from oil-barter to foreign exchange. The foreign exchange market is the most liquid financial market in the world. Traders include governments and central banks, commercial banks, other institutional investors and financial institutions, currency speculators , other commercial corporations, and individuals.

The biggest geographic trading center is the United Kingdom, primarily London. In April , trading in the United Kingdom accounted for Owing to London's dominance in the market, a particular currency's quoted price is usually the London market price. For instance, when the International Monetary Fund calculates the value of its special drawing rights every day, they use the London market prices at noon that day. Trading in the United States accounted for Foreign exchange futures contracts were introduced in at the Chicago Mercantile Exchange and are traded more than to most other futures contracts.

Most developed countries permit the trading of derivative products such as futures and options on futures on their exchanges. All these developed countries already have fully convertible capital accounts. Some governments of emerging markets do not allow foreign exchange derivative products on their exchanges because they have capital controls.

The use of derivatives is growing in many emerging economies. The growth of electronic execution and the diverse selection of execution venues has lowered transaction costs, increased market liquidity, and attracted greater participation from many customer types. In particular, electronic trading via online portals has made it easier for retail traders to trade in the foreign exchange market. Unlike a stock market, the foreign exchange market is divided into levels of access.

At the top is the interbank foreign exchange market , which is made up of the largest commercial banks and securities dealers. Within the interbank market, spreads, which are the difference between the bid and ask prices, are razor sharp and not known to players outside the inner circle. The difference between the bid and ask prices widens for example from 0 to 1 pip to 1—2 pips for currencies such as the EUR as you go down the levels of access.

This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" the amount of money with which they are trading.

An important part of the foreign exchange market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have a little short-term impact on market rates.

Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational corporations MNCs can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

National central banks play an important role in the foreign exchange markets. They can use their often substantial foreign exchange reserves to stabilize the market. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses as other traders would.

There is also no convincing evidence that they actually make a profit from trading. Foreign exchange fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that central banks use the fixing time and exchange rate to evaluate the behavior of their currency. Fixing exchange rates reflect the real value of equilibrium in the market.

Banks, dealers, and traders use fixing rates as a market trend indicator. The mere expectation or rumor of a central bank foreign exchange intervention might be enough to stabilize the currency. However, aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.

Investment management firms who typically manage large accounts on behalf of customers such as pension funds and endowments use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases. Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk.

While the number of this type of specialist firms is quite small, many have a large value of assets under management and can, therefore, generate large trades. Individual retail speculative traders constitute a growing segment of this market. Currently, they participate indirectly through brokers or banks.

Retail brokers, while largely controlled and regulated in the US by the Commodity Futures Trading Commission and National Futures Association , have previously been subjected to periodic foreign exchange fraud. Those NFA members that would traditionally be subject to minimum net capital requirements, FCMs and IBs, are subject to greater minimum net capital requirements if they deal in Forex.

A number of the foreign exchange brokers operate from the UK under Financial Services Authority regulations where foreign exchange trading using margin is part of the wider over-the-counter derivatives trading industry that includes contracts for difference and financial spread betting. There are two main types of retail FX brokers offering the opportunity for speculative currency trading: brokers and dealers or market makers. Brokers serve as an agent of the customer in the broader FX market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer.

They charge a commission or "mark-up" in addition to the price obtained in the market. Dealers or market makers , by contrast, typically act as principals in the transaction versus the retail customer, and quote a price they are willing to deal at.

Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as "foreign exchange brokers" but are distinct in that they do not offer speculative trading but rather currency exchange with payments i.

These are typically located at airports and stations or at tourist locations and allow physical notes to be exchanged from one currency to another. They access foreign exchange markets via banks or non-bank foreign exchange companies. There is no unified or centrally cleared market for the majority of trades, and there is very little cross-border regulation. Due to the over-the-counter OTC nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded.

This implies that there is not a single exchange rate but rather a number of different rates prices , depending on what bank or market maker is trading, and where it is. In practice, the rates are quite close due to arbitrage. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters , called Fxmarketspace opened in and aspired but failed to the role of a central market clearing mechanism.

Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session. Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows.

Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, large banks have an important advantage; they can see their customers' order flow. Currencies are traded against one another in pairs.

The first currency XXX is the base currency that is quoted relative to the second currency YYY , called the counter currency or quote currency. The market convention is to quote most exchange rates against the USD with the US dollar as the base currency e.

On the spot market, according to the Triennial Survey, the most heavily traded bilateral currency pairs were:. The U. Trading in the euro has grown considerably since the currency's creation in January , and how long the foreign exchange market will remain dollar-centered is open to debate. In a fixed exchange rate regime, exchange rates are decided by the government, while a number of theories have been proposed to explain and predict the fluctuations in exchange rates in a floating exchange rate regime, including:.

None of the models developed so far succeed to explain exchange rates and volatility in the longer time frames. For shorter time frames less than a few days , algorithms can be devised to predict prices. It is understood from the above models that many macroeconomic factors affect the exchange rates and in the end currency prices are a result of dual forces of supply and demand. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly.

No other market encompasses and distills as much of what is going on in the world at any given time as foreign exchange. Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.

Economic factors include: a economic policy, disseminated by government agencies and central banks, b economic conditions, generally revealed through economic reports, and other economic indicators. Internal, regional, and international political conditions and events can have a profound effect on currency markets. All exchange rates are susceptible to political instability and anticipations about the new ruling party.

Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:.

A spot transaction is a two-day delivery transaction except in the case of trades between the US dollar, Canadian dollar, Turkish lira, euro and Russian ruble, which settle the next business day , as opposed to the futures contracts , which are usually three months. Spot trading is one of the most common types of forex trading. Often, a forex broker will charge a small fee to the client to roll-over the expiring transaction into a new identical transaction for a continuation of the trade.

This roll-over fee is known as the "swap" fee. One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then.

The duration of the trade can be one day, a few days, months or years. Usually the date is decided by both parties. Then the forward contract is negotiated and agreed upon by both parties.

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