The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies. The main participants in this market are the larger international banks.

1. Foreign exchange market mechanism
International Business

2. Prepared By
Manu Melwin Joy
Assistant Professor
Ilahia School of Management Studies
Kerala, India.
Phone – 9744551114
Mail – manu_melwinjoy@yahoo.com
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4. Introduction
• The foreign exchange
market (forex, FX, or
currency market) is a
global decentralized
market for the trading
of currencies. The
main participants in
this market are the
larger international
banks.

5. Introduction
• Financial centres around
the world function as
anchors of trading
between a wide range of
multiple types of buyers
and sellers around the
clock, with the exception
of weekends. The foreign
exchange market
determines the relative
values of different
currencies.

6. Introduction
• The foreign exchange market
assists international trade and
investments by enabling currency
conversion. For example, it
permits a business in the United
States to import goods from the
European Union member states,
especially Eurozon members, and
pay euros, even though its income
is in Unites States dollars. It also
supports direct speculation and
evaluation relative to the value of
currencies, and the carry trade,
speculation based on the interest
rate differential between two
currencies.

7. Introduction
• The foreign exchange market
is the most liquid financial
market in the world. Traders
include large banks, central
banks, institutional investors,
currency speculators,
corporations, governments,
other financial institutions,
and retail investors. The
average daily turnover in the
global foreign exchange and
related markets is
continuously growing.

8. Introduction
• The foreign exchange (FX or FOREX)
market is the market where
exchange rates are determined.
Exchange rates are the mechanisms
by which world currencies are tied
together in the global marketplace,
providing the price of one currency
in terms of another. An exchange
rate is a price, specifically the
relative price of two currencies For
example, the U.S. dollar/Mexican
peso exchange rate is the price of a
peso expressed in U.S. dollars. On
January 4, 2010, this exchange rate
was USD 1.4422 per EUR, or, in
market notation, 1.4422 USD/EUR.

11. Functions of the Foreign Exchange Market
• The foreign exchange
market is the mechanism by
which a person of firm
transfers purchasing power
form one country to
another, obtains or
provides credit for
international trade
transactions, and minimizes
exposure to foreign
exchange risk.

12. Functions of the Foreign Exchange Market
• Transfer of purchasing
power is necessary
because international
transactions normally
involve parties in
countries with different
national currencies. Each
party usually wants to
deal in its own currency,
but the transaction can
be invoiced in only one
currency.

13. Functions of the Foreign Exchange
Market
• Provision of Credit:
Because the
movement of goods
between countries
takes time, inventory
in transit must be
financed.

14. Functions of the Foreign Exchange
Market
• Minimizing Foreign
Exchange Risk: The
foreign exchange
market provides
"hedging" facilities for
transferring foreign
exchange risk to
someone else.