Geography and the Foreign Exchange Market a. What is the geographical location of the foreign exchange...

Geography and the Foreign Exchange Market

a. What is the geographical location of the foreign exchange market?

b. What are the two main types of trading systems for foreign exchange?

c. How are foreign exchange markets connected for trading activities?

Solutions

Expert Solution

Answer for a. Question is being asked over to name a geographical location of the foreign exchange market, whereas foreign exchange market has such no central location and is decentralized. Also traded globally 24/7 through many mediums of exchanges. Medium of exchanges can be brokerage houses, companies with electronic platform and central banks.

Answer for b. Foreign exchange serves the services of buying and selling the currencies throughout the trading systems. Those trading systems are mainly of 1. Interbank Market 2. Over the Counter Market. Interbanks are where many of the banks are interconnected via a reliable network. OTC Market is offered by many companies to trade although this is less regulated than the latter.

Answer for c. Foreign exchange markets are connected for trading activities via facilitating the processing of Buy/Sell/Hold trading activities on currencies. Foreign exchange is a marketplace whereas it determines the the exchange rate for the currencies trading globally. The participants in this type of markets are banks,brokers, speculators, people who try to make money by selling off the currencies and people who want to exchange one currency for another. As currencies are always paired, Forex will arrange the two types of currencies to be bought and sold as per the requirements of an investor/speculator.

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