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Why does most interbank currency trading worldwide involve the U.S. dollar? Explain in detail and provide...

Why does most interbank currency trading worldwide involve the U.S. dollar? Explain in detail and provide an example. How have the current financial problems in the U.S. affected interbank trading, if any?

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Expert Solution

Foreign exchange refers to the place in the market where trading of international currencies takes place.

Foreign exchange is the largest market place for the trading of currencies in the world where buying and selling of currencies takes place.

Trading in currencies worldwide is against a common currency that has international appeal.Trading would be exceedingly cumbersome and difficult to manage if each trader made a market against all other currencies.So most interbank currency trafing worldwide involve US Dollars.

Over the short term, the financial crisis affected the banking sector by causing banks to lose money on mortgage defaults, interbank lending to freeze, and credit to consumers and businesses to dry up.

ekkarill92 answered 2 years ago
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