Evaluate and outline the principal utility of the foreign exchange market.

Expert Solution

The foreign exchange market is the financial which provides the platform through which the currency of one country is exchanged for currency of another country, the rate at which currencies are exchanged are called exchange rate and is determined by demand and suplly of currency in foreign market.The foreign exchange market is a global decentralized market where trading of currencies takes place. Foreign exchange markets consist of various financial institutions like banks, commercial companies, central banks, investment management firms, hedge funds etc.

A foreign exchange trade between a buyer and seller, a fixed amount of one currency will be delivered for some other currency at a specified rate

Functions or utility of Foreign exchange market:

1- To complete the trade between the parties like importers and exporters, investors in foreign securities, and tourists trade transactions take place in foreign exchange market to transfer purchasing power from one country and its currency to another

2-.To finance goods in transit. Typical parties would be importers and exporters.

3- Foreign exchange market provide hedging facilities to parties to avoid foreign exchange risk. T

jeff jeffy answered 2 years ago

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