The Foreign Exchange Market

Abstract

The foreign exchange market is a form of international market for the trading of all national currencies. Financial centers all over the world function as anchors of trading among a wide range of different types of buyers and sellers around the clock, with the exception of weekends. This foreign exchange market determines the relative values (exchange rates) of different currencies. It also assists international trade and investment by enabling currency conversion, offering lines of credit in different currencies, and providing instruments of hedging exchange rate risk. Further, it supports direct speculation on the value of currencies and arbitrage profits between different markets, based on different exchange rates and interest rate differentials among countries.