Foreign Exchange Markets SummaryIn view of the fact that the planetary business environs is not set up with a worldwide fair for exchange, the unusual exchange market is a necessity for international trade. The major functions of the foreign exchange market are to manoeuvre purchasing power, bothocate open trade for international markets, monitor lizard exchange rates from fluctuating to rigorously, and to aid in the import and export of goods between countries by providing credit for financing international trade.
The foreign exchange market cornerst nonpareil be set forth as a market where the range of specie is converted from one rustic to another. Currency can be bought, change or traded through the foreign exchange market at a profit or loss depending on electric current exchange rates. The foreign exchange market is worldwide. All currency exchanged is done through business transactions oer the phone, by fax or electronic distribution networks via the net; thus, every transaction is considered as over-the-counter.
Exchange rates can be described as the amount of units of one country?s currency that can be exchanged for a set amount of units of another country?s currency. Therefore, the value of one currency is always determined in intercourse to another currency. For instance, the value one U.S. dollar ($) in toll of one China renminbi (RNB) in terms of renminbi?s would be RNB/$ exchange rate.
Hence, if $1 = 5 RNB, to find the value of one RNB in terms of dollars, one would divide both sides by 5 to find the exchange rate. Therefore, one RNB = 1/5 = $0.2 whereas one $ would = 5/1 = 5RNB. This equation is used in determining the value of all currency in the foreign exchange market and it is particularly useful when dealing with unacquainted(predicate) currencies (Suranovic, S. M., 2005).
Exchange rates are usually broken...
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