A to Z of Foreign Exchange Market

20 November 2011

Currently we are living in the modern business world. This is a money world. In this world it’s hard to depend on single country money. That’s why we need the foreign exchange market. It is the need of today business world. The Foreign exchange market is also popular as Forex. It other names are Currency and Fx. It means exchange or trades currencies.

Forex lets banks and other institutions easily buy and sell currencies. It is a non-stop international exchange market where currencies from all part of the globe are traded for profit purposes. The purpose of the FX market is to help international trade and investment. A FX market helps businesses convert one currency to another. For example, it permits a European business to import Indian goods and pay Rupees, even though the business’s income is in Euro currency.

It involves all the country in the world. It is the largest and the most liquid financial market in the globe. In a typical foreign exchange transaction a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market started forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.

The Scope of Forex
The Forex is the largest and most liquid financial market in the world. Traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing.

Advantages of Foreign Exchange Market

Below are the some advantages of forex –

* Its working time is 24×7. It is 24 hours daily from Sunday to Friday afternoon.
* It is not centered in only one place. It can be done anywhere, worldwide.
* It enables traders to create a straight forward marketing since it can be delivered over the internet. And since it’s an online marketing, there are no fees and taxes.
* It is a currency trading market. So, governments cannot set taxes on this.
* Most popular investment market in the globe.
* It does not limit to big investors only. Even small investors can join this market.
* There is no external management in foreign exchange market. Only the traders will decide on how much the worth of currency will be depending on its demand and supply.
* There is always someone to trade in this market.

Disadvantages of Foreign Exchange Market
Here are some potential disadvantages of this system –
* If traders wouldn’t participate actively in this system, the possibility for loss is quite high.
* Instability of Foreign Exchange market like Share market. Forex is unstable and it can alter in a matter of minutes. Financial disaster can be expected. But it can be prevented with correct training and knowledge about this system.
* Need of Credit Card.
* Need of Internet Knowledge.


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