What is Foreign Exchange Market in International Business
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What is Foreign Exchange Market in International Business

The Foreign Exchange market is a kind of market where one can buy, sell & exchange the currencies from all over the world. Generally the Foreign Exchange is made up of monetary institutions, banks, companies, investment management funds and the Retails forex broker and investors. The forex market is the largest market of the world.

The forex market is unlike the other markets, but have it’s own differences. There are 2 features that makes it different from other market of the world.

  1. In the forex market currencies are being bought and sold, rather that the goods or services. This is the 1st unique feature.
  2. The currency in the forex market has been bought and sold with another currency not with any other product or service.

There are some key terms which one should know in order to understand properly.

  • Exchange Rate : The price of 1 currency against other currency. Let me give you an example. If the exchange rate of Dollar ($) is 80rs then you can purchase the dollar at the cost of 80rs.
  • Foreign Exchange Market : Forex market is a market where these currencies are exchanged. One can purchase and sale a currency at the Forex market.
  • Appreciation : When the value of 1 currency increases as relation to the other currency. This is known as the appreciation of a currency. To make it simple, if you are buying a currency and you want more of another currency as needed earlier.
  • Depriciate : When the value of 1 currency decreases as relation to the other currency. This is known as the Depreciation of the currency. This is just a vice versa of appreciation.

Let’s know the advantage & disadvantage of the Foreign Exchange Market:

Advantages

  • There is no clearing house of central bodies, to oversee the market.
  • Investors don’t have to pay any fees or commission as compared to other markets
  • One can trade at any time of the day as the forex market is open 24 hours.
  • One can get in or out of the market at any time they want.

Disadvantage:

  • Investors have a risk of loss as there is no regulated authority that oversees the market.
  • The forex currency doesn’t provide dividends or any bonus as they solely depends on the currency appreciation & depreciation.
  • The Forex currency gas a lack of transparency. The traders don’t have full control over how the trades are filled.

In the forex market, the currencies are traded in lot, micro, mini and a standard. When it comes to the Micro Lot, it is 1000 worth of a currency, A mini lot is 10,000 and the standard lot consist of 100,00.

So these were the information about the Foreign exchange market in the internatinal business. It is advisable for people to trade at their own risk as it involves the risk of losing the money. This article has been shared just for the informational purpose.

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