The Foreign exchange market is a market where foreign currencies are bought and sold for the purpose of transferring funds from one country to another. A foreign exchange market is also a market where foreign currencies are exchanged with the local currency. Examples of the foreign currencies are US dollars, British pound sterling, German mark, Japanese yen, Swiss, etc. All these are bought and sold for other international currencies which are generally accepted as means of payment in the world market.
Anytime the foreign exchange rate increases the domestic currency depreciates or falls in value and when the foreign exchange rates decrease the domestic currency appreciates or increases in value, in terms of foreign currency.
Functions of the Foreign Exchange Market
1. It includes the provision of short-term credit finance
2. It provides facilities for exchange rate
3. It is the market that allows the sales and purchase of currency
4. It enables easy transfer of international currencies
5. It includes all network of communication between banks and traders.
Evaluation Questions
1. Explain the regulatory agencies for capital market
2. What are the functions of Central Bank
Responses