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The Foreign Exchange Market
One of the most interesting topics in the field of international economics is the operation of foreign exchange. I discussed in this essay the basic concepts that a lay reader ought to know about foreign exchange.
|language || ||english
|wordcount || ||3510 (cca 10 pages)
|contextual quality || ||N/A
|language level || ||N/A
|price || ||free
|sources || ||3
Table of contents
Foreign Exchange Market Operations 1
International Payments 2
Telegraphic Transfer Payment 2
Foreign Exchange Market Model 2
Demand for Dollars 3
Supply of Dollars 3
Foreign Exchange Market 5
Exporters of Goods and Services 6
Interest Arbitrage 7
Currency Speculation 7
Preview of the essay: The Foreign Exchange Market
FOREIGN EXCHANGE MARKET Introduction International trade is basically an exchange of goods and services among countries. Clearly, without money, such exchange cannot be done efficiently. Goods and services can be exchanged through barter, but this is slow and cumbersome. Thus money has been invented to facilitate exchange. In domestic trade, local currency, the yen is the money in Japan while the pound in Britain. But most local currencies cannot be used for payments in international transactions. Only internationally recognized monies are acceptable, such as the U.S. dollars, British pound, Japanese yen, German mark, and a few other currencies, nevertheless, local currencies which are not considered international monies can be exchanged with latter. For instance, the Philippine peso can be changed to the U.S. dollar. Foreign exchange generally refers to foreign currencies. To a Filipino, U.S. dollar, Japanese yen, French franc and German mark are foreign exchange. Payments of international transactions are in the form of acceptable foreign exchange. The conversion of local currencies into foreign currency is done by foreign exchange markets. Just like ...
... incentive to invest in London. CURRENCY SPECULATION Another group of users of forward exchange market are the currency speculators. They speculate by buying spot exchange in a foreign currency which they believe would appreciate. They hold such currency for some time. In case their forecast is correct, they sell is for a profit. On the other hand, the speculators can incur losses if their foreign currency holdings depreciate. For example, Angelina Brosas thinks that the U.S. dollar will appreciate over the next 90 days. Therefore, she buys $1,000 at P20 to $1, speculating exchange rate to rise up to P23. She does not cover her position with a forward purchased of dollars since she does not believe the dollar will depreciate. If the dollar appreciates over the next 90 days, then she makes a profit. If the dollar depreciates, she incurs a loss.
Essay is in categories
Capital Markets & Exchanges
This is a good piece of discussion about foreign exchange. I gain a lot of knowledge in this essay.