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Clay Marafiote – The Aime Workshop
Clay Marafiote – The Aime Workshop
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Describe Forex.
The “location” where currencies are transacted is the foreign exchange market. Whether they know it or not, currencies are significant to the majority of people in the globe because they must be traded in order to conduct international commerce and business. If you reside in the United States and wish to purchase cheese from France, you or the business you purchase the cheese from must pay the French in euros (EUR). This implies that the American importer would have to convert the comparable amount of USD into EUR. The same is true with travel. An Egyptian visitor from France cannot see the pyramids by paying with euros because that cash is not accepted there. As a result, the traveler must exchange his or her euros at the going rate for the local money, in this example, the Egyptian pound.
The key factor making the forex market the biggest, most liquid financial market in the world is the need to exchange currencies. It is far larger than other markets, including the stock market, with an average daily traded value of almost US $2,000 billion. (The overall volume varies constantly, but as of August 2012, according to the Bank for International Settlements (BIS), the currency market transacted more than US$4.9 trillion each day.)
The absence of a central exchange market is one distinctive feature of this global market. Now of taking place on a single centralized exchange, currency trading is instead carried out electronically over-the-counter (OTC), which implies that all transactions take place over computer networks between traders across the world. The market is open twenty-four hours a day, five and a half days a week, and in practically all time zones, currencies are exchanged in the major financial hubs of London, New York, Tokyo, Zurich, Frankfurt, Hong Kong, Singapore, Paris, and Sydney. This implies that the currency market in Tokyo and Hong Kong opens fresh at the conclusion of the U.S. trading day. As a result, the currency market may be quite lively at any time of day, with shifting price quotations.
Forwards and futures markets in addition to the spot market
Institutions, businesses, and individuals can trade foreign exchange in one of three ways: on the spot market, on the forwards market, or on the futures market. Because it is the “underlying” actual asset on which the forwards and futures markets are based, FX trading has historically been the largest market. Because it was accessible to individual investors for a longer time, the futures market used to be the most popular trading venue. But with the introduction of computerized trading, the spot market has seen a tremendous increase in activity and has surpassed the futures market as the favored trading venue for speculators and private investors. The spot market is typically meant when someone mentions the foreign exchange market. Companies that need to hedging their foreign exchange risks out to a specified date in the future tend to use the forwards and futures markets.
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