What is Foreign Exchange Market?
The Foreign Exchange market, also known as the currency market, is a decentralized financial market where currencies are bought and sold. It is the largest and most liquid financial market in the world, with an average daily turnover of over $5 trillion.
The primary participants in the FX market include banks, corporations, governments, central banks, hedge funds, and individual traders. The FX market operates 24 hours a day, five days a week, across different time zones around the world.
The FX market plays a crucial role in facilitating international trade and investment by providing a means for businesses and investors to exchange currencies in order to conduct cross-border transactions. Additionally, the FX market serves as a mechanism for investors to speculate on changes in exchange rates between different currencies.
Practice Questions
1. What is the foreign exchange market?
a) A market where foreign goods are traded
b) A market where foreign currencies are traded
c) A market where stocks of foreign companies are traded
d) A market where foreign bonds are traded
2. What is the daily trading volume of the foreign exchange market?
a) $10 billion
b) $100 billion
c) $1 trillion
d) $6 trillion
3. What determines the exchange rate in the foreign exchange market?
a) Government policies
b) Supply and demand
c) The country’s GDP
d) The country’s inflation rate
4. Which of the following is not a factor that can affect the exchange rate?
a) Changes in interest rates
b) Political instability
c) Economic growth
d) Changes in the color of the national flag
Answers:
1. B
2. D
3. B
4. D
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