Question

Use real or hypothetical examples as a way to illustrate your explanation:

- FOREX Market: structure, participants, significance

Answer 1

The foreirn exchange market (Forex or currency market) is a decentralized global or over the counter market for currency trading . Foreign exchange rate for every currency is determined in this market.All aspects of buying, selling , exchanging currencies at the prices which is determined or in the current prices , is done in this market.

Structure- The structure of Foreign exchange market consists of central bank,commercial bank,brokers, importers and exporters,immigrants ,investors , tourists.These constitute the main players of the foreign market.Currencies are purchased from the brokers by the banks and sold to the buyers.At the bottom of the pyramid are the buyers and sellers .The banks are in the second layer of the foreign exchange market,and the third layer of the pyramid consists of foreign exchange brokers.

Participants-Participants can be divided into 5 groups, commercial banks, foreign exchange brokers,central bank,MNC's , individual and small businesses.

Significance-Foreign exchange is important because a country pays its import bills ithrough this market because when we import , it has to be paid in local currency.Foreign exchange plays important role in trading, payments and receipts from service providers and citizens This is because every country has different currency.For eg a Mumbai bank may quote its rate for US dollar ie a person may be converting physical rupee to US dollar for payment of business transactions.