It has a particular feature, the free change of coins. Among its fundamental objectives is the ease of activating investments and international demand.
It is also known as FOREX (Foreign Exchange) which, when translated, means exchange of foreign currencies. In this space, which can be physical or virtual, a type of exchange or price of each currency is set.
This price will exclusively depend on the supply and demand of those who participate. In this article we will show you the foreign exchange market.
- The foreign exchange market: And its transactions
- Foreign exchange market: Its beginnings
- Monetary flows and currencies
- Currencies and economic policies
- The arrival of cryptocurrencies and the foreign exchange market
- The foreign exchange market and its instruments
- The foreign exchange market and its characteristics
- Foreign exchange market and the institutions that make this activity possible
The foreign exchange market: And its transactions
In the exchange market, business is not done only with cash, on the contrary, deposits are also used. With records in financial institutions or banks, in addition to documents that give the right to collect a certain amount of money.
The foreign exchange market benefits purchases and sales of companies from other countries. Without the same coin existing between them. A clear example of this can be seen in the import of products from Europe to the United States.
Although the company's income is handled in dollars, from the foreign exchange market, it can be canceled in Euros. What must be known is the value of the currency, for this, the currency converter is used.
Foreign exchange market: Its beginnings
This type of market has not been created for a long time. It is known from year 1970, from a float change. That gave way to the extinction of the fixed exchange rate that was established in 1944.
This market is unique in trading volume:
- The extra liquidity of the market.
- The large number and variety of those involved in that market.
- Geographic dispersion.
- Operations are carried out 24 hours a day. Except for Saturdays and Sundays.
- The variety in the factors that produce exchange rates.
- The volume of currencies that are traded internationally.
Monetary flows and currencies
The appearance of this market is due to a specific reason, which is related to the economy. In this sense, it should not be forgotten that the appearance of this market was born with a clear objective. Which is none other than the facility for flow arising from international trade.
Foreign exchange gives the possibility to buy and sell anything you want. To the point that it gives value to all the operations carried out around the world.
Since there is a direct link between the price at which currencies are quoted in the market.
Currencies and economic policies
Currencies have become a tool to achieve the development of a country's economic policies. Among other commercial values of vital importance.
Most international operations take place in specific currencies, such as the euro and the dollar.
For this reason, these currencies have become a very important factor in generating changes in those markets where they are listed.
They are so valuable in the world economy that they can cause many financial ups and downs. As it has developed in current times. Causing major recessions in the world economy.
The arrival of cryptocurrencies and the foreign exchange market
In recent times, with the arrival of cryptocurrencies or virtual currencies, the foreign exchange market has undergone some changes.
The arrival of these coins has attracted many users. But they have not created enough security that everyone is looking for in their transaction. Since they do not have the same denomination of coins.
Cryptocurrencies can appreciate up to 100% and even more. But they have important risks, especially in the savings that are invested when using them. This is a distinct asset, which should not be compared to other existing currencies.
Therefore, you must be very careful about any strange movement in the bank accounts.
The foreign exchange market and its instruments
There are various instruments within the foreign exchange market, among which are:
spot forex trading
In this case when the purchase and sale of currencies is made. The transaction is very fast, it does not exceed more than two business days.
Forward foreign exchange procedures
When contracting, the quantity and price are set for the purchase and sale of foreign currency. But their delivery takes place at a fixed time, on a contract. They represent approximately 70% of the operations that are executed.
Currency financial option, in English Foreing Exchange Options. This does not offer the obligation, but the contract to the right. To the exchange of currencies, for others at a certain rate on a specific date.
Foreign Exchange Futures
It is made when exchanging currencies that are established under a certain rate.
“Non deliverable forwards” (non-negotiated currency contract)
Contract that has been negotiated territorially, and that is canceled based on different currencies.
Term futures or outright forward
In English it means "exchange". It is a sale of one currency for another, at the rate of a predetermined day in the future.
Contract that has peculiar characteristics of buying and selling a group of currencies. Or to resell and buy back the currencies at a certain rate on a specific date.
The foreign exchange market and its characteristics
The most outstanding characteristics of the foreign exchange market are the following:
A high number of currency clearing operations is reached throughout the world, specifying what is considered the largest finance market.
Diversity or Variety
This type of transaction is carried out between natural persons or international entities that go to a house where currency exchange is carried out.
Communication between the giver and the claimant easily occurs. Transactions are carried out in different ways, either directly from a computer or by going to a bank teller.
It is a means that allows agents to clear a particular currency. As is the case, for example, when a contract between two people is finalized and they are living in different countries. The buyer in that case, must acquire foreign currency.
Foreign exchange market and the institutions that make this activity possible
The main institutions that participate in the exchange or foreign exchange market are:
They are the financial intermediaries that allow their clients to agree on foreign exchange.
They also make purchases and sales of currencies in the administration of deposits, seeking to maintain a high percentage in dollars.
They are entities that have the monetary authority in each country. They are responsible for different actions to ensure that currencies do not oscillate. To avoid this, they have monetary policy instruments. Among which are the certificates of deposits.
They are in charge of attending the foreign exchange market regarding the purchase and sale of foreign currency. As an example, there are importers who want to obtain foreign currency to cancel their suppliers.
They are special places where you proceed to make changes in foreign currency. They are open to the public, so they can exchange part of their capital in a different currency. These operations are carried out in cash.
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