Laromare Da Quequere Mos

Martin Chandra asked:


The vast currency market is a foreign concept to the average individual. However, once it is broken down into simple terms, one can begin to easily understand the foreign exchange market and see what a profitable avenue of income participating in the trading of Forex can be.

Whether or not you are aware, you already play a role in the foreign exchange market, also known as the Forex market. The simple fact that you have money in your pocket makes you an investor of currencies, and more particularly, an investor of U.S Dollars!

The cash in your wallet and money in your savings account are in U.S. Dollars. The value of your mortgage, stocks, bonds, and other investments are expressed in U.S. Dollars. In other words, unless you are among the few Americans who have foreign bank accounts or have bought a modest amount of foreign currencies or securities, you are an investor of U.S. Dollars.

By holding U.S. Dollars, you have basically elected not to hold the currencies of other nations. Your purchase of stocks, bonds, and other investments, along with money deposited into your bank account represent investments that rely heavily on the integrity of the value of the currency in which it is denominated the U.S. Dollar.

Due to the constant increasing and decreasing value of the U.S. Dollar and the resultant fluctuation in exchange rates, your investment portfolio may have experienced changes in value, thus affecting your overall financial status.

With this in mind, it should be no surprise that many shrewd investors have taken advantage of the fluctuation in exchange rates using the volatility of the foreign exchange market to trade currencies and put more money in their pockets.

The foreign exchange market has experienced many changes since its inception. For years, as you learned above, the United States and its allies, under the Bretton Woods Agreement, participated in a system in which exchange rates were tied to the amount of gold reserves belonging to the nation. However in the summer of 1971, President Nixon took the United States off the gold standard, and floating exchange rates began to materialize.

Today, supply and demand for a particular currency, or its relative value, is the driving factor in determining exchange rates. There have been many radical global economic changes over the last decade.

Some of these changes have decreased obstacles and increased opportunities in world trade, such as the fall of communism in the Soviet Union and Eastern Europe, the renewed political reform in South America and the continuing liberalization of the Chinese economy have boosted the worldwide economy by opening up new markets and opportunities. These events have lifted traditional trade barriers resulting in a tremendous increase in foreign investment.

With this increase however, all nations are more interrelated and dependent upon one another. Increasing trade and foreign investment have made the economies of all nations more and more interrelated.

Fluctuations in economic activity in one country are reflected in that country’s currency and immediately transmitted to its partners, altering the relative price of products and thus affecting costs and profits, which in turn affect changes in currency values.

Regularly reported economic figures around the world, such as inflation or unemployment levels, as well as unexpected news, such as natural disasters or political instability, alters the desirability of holding a particular currency, thus influencing international supply and demand for that currency.

The U.S. Dollar, therefore, fluctuates constantly against the currencies of the rest of the world. The current web of international trade and the resultant fluctuations in exchange rates have created the world’s largest market the foreign exchange market, a market whose vast size makes it the most efficient, fairest, and liquid of all markets.

The Interbank Foreign Exchange Market is an unregulated, decentralized international forum that deals in the various major currencies of the world, with virtually no direct government regulation or interference.

The Interbank Foreign Exchange Market involves trading one nation s currency for the currency of another nation. Foreign exchange, however, is not a “market” in the traditional sense since there is no centralized location for trading activity. It is an electronically linked world-wide network of currency traders dispersed throughout the leading financial centers of the world.

An international community of approximately 400 banks make the daily currency exchanges for buyers and sellers worldwide who conduct business linked by the Internet, phones, computers, fax machines and other means of instant communication.

Trading occurs over the telephone and through computer terminals at thousands of locations worldwide. The direct Interbank market consists of dealers with currency settlement capabilities trading as principals. It is this dealer segment of the market that is responsible for generating a large portion of the overall foreign exchange volumes.

Trading between dealers creates the largest turnover in the market, making foreign exchange the most liquid of all markets. Trading approximately $1.5 trillion every day, the foreign exchange market is the largest financial market in the world. Traditionally, the foreign exchange market has only been available to banks, money managers, and large financial institutions.

Over the years, these institutions, including the U.S. Federal Reserve Bank, have realized large gains via currency trading. This growing market is now linked to a worldwide network of currency traders, including banks, central banks, brokers, and customers, such as importers and exporters.

Today, the foreign exchange market offers opportunities for profit not only to banks and institutions, but to individual investors as well. A great advantage is the size and volume of the Forex Interbank market makes it impossible to manipulate the market for any length of time. Unlike the equity markets, no really effective “insider” interference is possible for any length of time in the Forex market.

As a result Forex is an action based, decentralized international market that allows various major currencies of the world to seek their true value. It operates as the purest form of supply and demand for currencies as a tradable commodity. This is why many analysts refer to it as the most efficient market in the world.

Amit Singh Bisht asked:


“MANAGING INDIA’S FOREIGN EXCHANGE RESERVES”

 

Foreign Exchange Reserves (FER) is the surplus money or capital that a country parks or maintains in the foreign country in form of currency, bond and other kind of securities.

 

Foreign exchange reserves are the foreign currency deposits held by national banks of different nations. These are assets of Governments which are held in different hard currencies such as Dollar, Sterling, Euro, Yen, Gold, SDRs. The current FER of India amounts to $251.33 billion as on 14 Oct as declared by the RBI. This amount seems an alien like figure when we look back to the early 90’s when we had just enough reserves to meet our country’s demand for the next two weeks. The total forex reserves have risen from $3.96 billion in March 1990 to $251.33 billion as on 14 Oct 2007.

 

Movements in Foreign Exchange Reserves (at the end of March)

 

 

 



 

OBJECTIVE:

 

The objectives of my article are as listed below:

 

1.      To study and analyze the current methods RBI uses to manage our FER.

 

2.       Analyze how other countries like China, Abu Dabhai and Singapore with large FER manage their reserves and whether India can also opt for these processes to obtain higher ROI.

 

3.      I would like to list out various other innovative and new options and avenues towards which India can look to which will benefit the country and its people, for getting higher returns on its reserves while minimizing the risk involved; as the primary objective of having a reserve is to provide a cushion in case of any emergency or financial crisis. I would also like to forward these suggestions to the RBI.

 

LITERATURE SURVEY:

 

1. “Determining the Optimum Level of Foreign Exchange Reserves”,

 

By Sajikumar, Treasury Management. The Icfai University Press, November, 2005.

 

The author says that the increase in the inflows of the foreign reserves in the country by the route of ADRs, GDRs, FDIs, ECBs, portfolio investments, non-resident deposits and bank capital raises the question of an ‘optimum’ level of reserves. Further, he discusses about the reserve adequacy indicators: Trade related indicators (reserves should be equivalent to a few months of imports), Debt related indicators (reserves can meet the external repayment obligations without additional borrowing for one year- Guidotti rule) and money-related indicators i.e. reserves to broad money/ reserves to reserve money.

 

2. “Should India Use Foreign Exchange Reserves For Financing Infrastructure?”

 

By Charan Singh, Stanford Center for International Development, September 2005

 

The author states the primary objectives of maintaining forex reserves is safety and liquidity, maximizing returns is secondary. The forex reserves in India are managed by RBI in consultation with the Government of India. The opinion of the author is that India should not invest forex reserves in Infrastructure. Going ahead he says, infrastructure projects in India yield low or negative returns due to difficulties: political and economic — especially in adjusting the tariff structure, introducing labor reforms, and upgrading technology and the use of FER to finance infrastructure may lead to more economic difficulties, including problems in monetary management.

 

3.“Surging Forex Reserves: A Frankenstein’s Monster?”

 

By GRK Murti, Forex Markets, Current Trends, The Icfai University Press, November, 2005.

 

The author talks about the surging forex reserves of the country and states that the level of forex has surpassed the adequate level. The author further says that the hoarding of forex reserves in the overseas markets has made it a Frankenstein’s Monster. Hoarding means savings that is put aside for the future use and this also entails an opportunity cost to it. He also opines that the RBI should take the risk of deploying these reserves in infrastructure projects or retiring high cost existing debt.

 

4.“India’s Forex Reserves Deployment Dilemma”

 

By Priyanka Sugandhi, Forex Markets , Current Trends. The Icfai University Press, November, 2005.

 

The author has shown the dilemma being faced by the RBI in deploying its forex reserves by citing the costs and the benefits associated with the huge forex reserves. The benefits being the foreign currency liquidity enabling the economy to absorb shocks like during the oil crisis, and high forex reserves also depicts the ability of the economy to meet its external obligations. The costs associated being the opportunity cost of deploying the reserves into the developed countries which gives low returns as compared to what Indian Government pay to its domestic borrowings whereas the bond market in developed countries are very liquid and do entail very low credit risk.

 

ISSUE:

The unprecedented rise in Foreign Exchange Reserves (FER) in India has raised concern about its optimal size and appropriate utilization. The amount of FER in India is modest when compared to some of the other countries in the region, and it can be argued that the proposed plan may lead to more economic difficulties than anticipated benefits. Safety and liquidity are paramount in the management of reserves and these demand that reserves are held mostly in G-7 central banks or Treasury bills of the highest quality and the lowest yields. The usual favorite in the latter are those issued by the US Government. Bonds are no better. Investments in G-7 bonds too are characterized by low yields, given the low level of global interest rates. Every country needs a minimum level of reserves for imports, debt-servicing and market intervention to ward off possible speculative attacks on the currency.

 

 India followed a restrictive external sector policy until 1991, mainly designed to conserve limited FER for essential imports (petroleum goods and food grains), restrict capital mobility, and discourage entry of multinationals. The external sector strategy since 1991, though gradualist in approach, has shifted from import substitution to export promotion, with sufficiency of FER as an important element. As a result of measures initiated to liberalize capital inflows, India’s FER (mainly foreign currency assets) have increased from US$6 billion at end-March 1991 to US$251 billion at Oct 2007. The acceleration in the trend first emerged in 1993, as recorded by the rise in foreign currency assets, when India adopted the market-based system of exchange rates and then in 2001, when the current account recorded a surplus after a persistent deficit since 1978. India ranks sixth in the world in holdings of FER in 2007.

 

The recent surge in FER has occurred primarily because of an increase in:

 

1.      Work Remittance

 

2.      Exports

 

3.      Capital Inflow

 

The RBI being the custodian of the FER has to decide how to manage the FER. This job is by no means an easy task and the controversy that surrounds the usage of our FER still looms at large. Some skeptics say that FER are a cushion for the country in case of an economic crisis and help in bailing out the country in case of an emergency. However it wouldn’t be wise to let our FER just keep on piling up and not utilize them judiciously. We can utilize our FER to improve our infrastructure, which is very desperately needed to sustain the rapid growth we are witnessing in our country at this moment, we can also utilize our foreign reserves to repay our short term high interest term loans taken from foreign financial institutions, using reserves to acquire foreign assets including technology or we can also utilize our reserves for social welfare to eradicate poverty. The ways in which we can utilize our resources are endless but we must take care not to overdo it. However not utilizing our reserves has an opportunity cost attached to it as the RBI primarily invests and parks its reserves in low yielding US govt. bonds.

REFERENCES

1.   Cardon Pierre And Joachim Coche, “Strategic Asset Allocation For Foreign Exchange Reserves”, Risk Management For Central Bank Foreign Reserves, European Central Bank, May 2004.

      2. Dwyer Mark and John Nugée, “Risk Systems in Central Bank Reserves Management”

, Risk Management for Central Bank Foreign Reserves, European Central Bank, May 2004.

 

3.      Damodaran Harish, “The `Other Capital’ Factor In Forex Reserves Accretion”, Financial Daily. The Hindu Group of Publications, Wednesday, Jul 02, 2003.

 

4.      Patnaik Ila And Peter Pauly, “The Indian Foreign Exchange Market And The Equilibrium Real Exchange Rate Of The Rupee”, Ncaer, Delhi And University Of Toronto, February 2001.

 

5.      Sajikumar, “Determining the Optimum Level of Foreign Exchange” Reserves, Treasury Management. The Icfai University Press, November, 2005.       

 

6.      Singh Charan, “Should India Use Foreign Exchange Reserves For Financing Infrastructure?” Stanford Center for International Development, September 2005

 

7.      Sugandhi Priyanka, “India’s Forex Reserves Deployment Dilemma”, Forex Markets,Current Trends. The Icfai University Press, November, 2005.

 

8.       Murti GRK, “Surging Forex Reserves: A Frankenstein’s Monster?”, Forex Markets, Current Trends, The Icfai University Press, November, 2005.

 

Cindy King asked:


Your international business development can easily be jeopardized with bad sales and marketing copy.

In international business development using your domestic sales and marketing materials will jeopardize your international results.

For all of your foreign clients you will need to have your sales and marketing materials written for your foreign country.

But how can you avoid translation blunders? Well let’s side-step the question of translation.

There is one important rule for getting high power sales and marketing communication:



You need the right person to do the job.



And the same rule applies for copy that gets results in a foreign language.



Not just any “right” person.



If your business is worth anything, you need to have all of your sales and marketing materials written, or at the very least proof read in detail, by a professional who is an expert in your particular business and good at writing sales materials in his own country.

The professional may be called different titles in different countries. He might be called a “copywriter”, or a “communication expert”, or a “marketing expert”. You will have to double check that this professional does actually write good sales copy for his job.

This will give you quality sales copy in the foreign language.

Having the right professional write your sales copy is often much better than having a professional translator translate your sales copy into a foreign language.

The right person will look at all of your marketing and sales materials to understand all of your current sales points. He will then “translate” these sales points culturally to the his own market and write you good sales and marketing materials in the foreign market.

The Right Foreign Writer’s Profile

Just to emphasize this again, ideally the person writing your sales and marketing materials should:



Be of mother tongue in the foreign language

currently live in your target market

be a active professional in writing good sales copy

have a significant professional background in your business

be highly fluent in your language to fully understand your marketing communication to your current markets



If the writer does not meet any one of these points, your sales copy will lose its power to generate foreign.

If two or three points are missing…maybe you should revise your objectives.

Real World Challenge

In the real world, businesses do not take the time to get their international sales and marketing materials written by someone meeting all of these qualifications.

Companies don’t want to spend the time to find the right person, don’t know where to find him, or don’t want to wait for the translations.

Companies also imagine the translation budget will be way out of their means without trying to find the right solution to fit their budget.

And yet you might be closer to finding the right person than you think.

Guerrilla Solutions To Get Good Foreign Copy Fast And Cheap

If your international business development is on a tight budget, why don’t you ask questions when doing your foreign market research over the phone? Start networking “over there”. Ideally you need to find a writer living and working in your foreign county. So starting there makes sense.

Keep networking, find out where such people are located, what their job titles can be, whether other professionals also need to do good writing. Keep looking.

You might find a foreign sales agent who would write your sales copy for you for a higher commission selling your product to clients in his country. A good international sales agent might already be doing this for his clients.

If you start off by limiting your foreign sales content to a single landing page and a monthly foreign communication tool for example, you will find it easier to find the right solution quickly. As you become more familiar with the international landscape you will know where to look for better solutions.

Thinking outside of the box and using both the phone and the internet will help you find the solution you need to get great sales copy in a foreign language.

This will give you sales copy guaranteed culturally blunder-free.

And more importantly, your sales copy will have the power to get you international clients.

Are you committed to speeding up your international sales cycles?

Learn how to combine cross-cultural marketing tools and international sales strategies for faster sales.

Join us on the International Sales Road Map

Would you like to develop your international business?

Are you a beginner at international sales and marketing?

Read the Beginners Guide Discover Your International Business

William Smith asked:


Foreign Currency Trading is a complete manual on effectively taking advantage of trading, both as a source of profit and income, and also as a sophisticated enclose in an investment selection. Foreign Exchange is the name given to the “direct access” trading of foreign currencies. Hence the word as Foreign Currency Trading.

Currency Trading is different from investing, since it is more speculative in nature. Currency Trading offers high potential returns because of the fact that you can control your money.

Lets try understanding the concept of Foreign Currency Trading with the help of an example. Leveraging your account balance by 100 to 1 means you can capture the change in value of $100,000 worth of a currency with only $1,000 in your forex margin account.

Some Currency Trading accounts may also offer 200 to 1 leverage. In contrast, a homeowner that puts 5 percent down on a home purchase only has 20 to 1 leverage. Thus, understanding the fact that a currency move can force liquidation of open positions if adequate margin isn’t maintained in the account.

Knowing Foreign Currency Trading Better

With an average daily volume of $1.4 trillion, Currency Trading is understood to be 46 times larger than all the future markets combined and, for such similar reasons, is the world’s most liquid market till date. In the past, Foreign Currency Trading was limited largely to enormous money center banks and other institutional traders.

But in just the recent few years, technological innovations and the development of online trading platforms, such as that used by the FX, allow mostly many small traders to take advantage of the significant benefits of Currency Trading with foreign Exchange.

Primarily, in the beginning of the era of Foreign Currency Trading, only very large enterprises had access to the foreign exchange, trading countenance within the inter-bank business, the largest and most liquid financial market countenance within the world.

In this market, currencies valued around USD2, 000 billion are bought and sold by thousands of worldwide participants every repeated day and 24 hours per day.

Recently, within the past few years this highly attractive market has become more and more accessible to the private clients too.

The market participants in Currency Trading, who are linked worldwide by the readily available modern communication systems, control the rates, because this market follows the law of supply and demand. As a result continuous changes in rates are registered.

The Foreign Currency Trading involves purchasing and selling of different currencies. It consists of making profitable use of these changes and the market fluctuations on the magnificent basis of well-tried Currency Trading models.

The special advantage of this investment as compared to the well-established investments like the fixed interest shares is that profits can also be made. For instance, the USD is falling instead of rising compared to, say for an example, the Euro.

In Foreign Currency Trading, a deal is always finalized between two different currencies, with one currency theoretically representing the loan currency that is the debit, and the other one the investment currency which is the credit. Results are restricted with limitations to the amount of the difference between the entry and exit prices.

Also an added advantage of Currency Trading is that it is possible to trade currency with up to 100 times or more of your own capital. This is called as leverage or say gearing. A relatively small market movement can almost have a proportionately larger impact then on the magnificent funds you have deposited or may think to deposit.

This can both options available as either it may work against you or it may work in favor for you.

In the Foreign Currency Trading market, currencies are always priced and traded in pairs. You simultaneously can buy one currency and sell another, but you can determine which pair of currencies you wish to trade.

As an example, if you believe the value of the Eurodollar is going to increase in comparison to the U.S. dollar, then you would buy the euro in the euro/U.S. dollar pair.

The objective of Currency Trading is to exchange one currency for another in the expectation that the market rate or price will change so that the currency you bought has increased its value relative to the one you sold.

If you have bought a currency during Foreign Currency Trading and the price increases in value, then you must sell the currency back in order to lock in the profit. An open trade or position is one in which a trader has either bought/sold one currency pair and has not sold/bought back the equivalent amount to effectively close the position.

As with most traded financial products, Currency Trading quotes include a “bid” and “ask.” The ask is the price at which a market maker will sell (and you can buy) the base currency in exchange for the counter currency.

Now, the bid is the price at which a market maker is willing to buy (and you can sell) the base currency in exchange for the counter currency. The difference between the bid and the ask price is referred to as the spread.

An advice that can be helpful is that if you posses a small amount and have no knowledge at trading currencies, then always start practicing with a Free Demo Account.

Familiarize yourself with the trading platform and develop one or more trading strategies. Foreign Currency Trading has become one of the primary most lucrative businesses resource within the world.

Chris David asked:


Foreign exchange is market where exchange of currencies takes place for another currency. Foreign exchange is the exchange activity takes place between currencies and provides liquidity and accessibility to the traders availing the service provided. Foreign exchange is referred as a market or network which provides service to the customers or traders all over the world. Foreign exchange is the market where exchange of currencies takes place for more and different number of foreign county. Foreign exchange is nothing but buying and selling of foreign currencies in exchange of another. In the foreign exchange market, more of number of foreign currencies will be exchanged by the members and other traders with fluctuations of market price.

Foreign exchange is created to provide more useful services to the customer, traders and participants. Some of the participants or traders of foreign exchange market are commercial banks, central banks, investment banks, brokers, registered dealers, global money managers, option traders and speculators. The rate of exchange fixed for the foreign currency varies as per the demand and fluctuation of foreign exchange market. Foreign currencies will be exchanged based on the requirement and demand for other foreign currency. The difference in the rate of foreign currencies will be made on the political, economic factors and with reference to the stability of the market.

Since, the main purpose of foreign exchange market is buying and selling of foreign currencies, more county are coming forward to exchange their currency for another. The entry of any foreign currency is free and any number of counties can enter the foreign exchange market by buying and selling foreign exchange currencies. Nowadays, foreign exchange market becomes the general and common market for more number of buyers and sellers to buy and sell at a profit. Trading in a foreign exchange market helps the buyer and seller to come up with good foreign currencies and profits for the currencies. Sometimes, the foreign exchange market may finds fluctuations for the foreign currencies listed with respect to political and economic condition of the foreign currency in the market.

The main reason for the establishment of foreign exchange market is to have a uniform rate for the currency listed in the market. Foreign exchange is very similar to stock market, but the difference is that, here in the foreign exchange the exchange takes place with respect to the currencies. Though foreign exchange fetches the good demand in the market, the currency prices also finds fluctuation in the market. With more number of customers and traders, foreign exchange serves the purpose for which it is established and offer better opportunity to come up with different and more number of foreign currencies as per their requirement.

John J Callingham asked:


Trade volume in foreign currency exchange trading has increased dramatically in recent years. Following the widespread adoption of the internet as a communication device, turnover in trade has exceeded more than $3.2 trillion each day. Yet, to attribute this dramatic increase in trade volume solely to the internet would simply downplay the inherent benefits that traders enjoy through the business of trading foreign currency. The fact is foreign currency exchange trading has many benefits as compared to other financial products such as stocks and bonds. We list 3 excellent benefits of foreign currency exchange trading for your consideration.

Key Forex Benefit #1- Recession Resistant

One of the key advantages foreign exchange traders enjoy lies within their insulation to recessions. While other financial products such as stocks are extremely vulnerable to recessionary pressures, the foreign exchange market is relatively immune towards such a downside.

This is due to the fact that the dollar can always be traded for or against other currency in the foreign exchange market. What this means is that the average trader would be able to tweak his investment strategy easily in accordance to general market conditions.

This gives him the ability to possibly profit even in the event of a recession if he plays his cards right. This contrasts greatly to the stock market where a recession would generally result in a broad market decline of the prices of various stocks.

Key Forex Benefit #2- Liquid Investment

Moreover, the foreign exchange market has the advantage of being extremely liquid. What this means is that investors would be able to withdraw from their investments at any point in time relatively easily.

This is due to the fact that the foreign exchange market has a global market, which means searching for a buyer to purchase a particular currency which you are interested to sell is usually not a big problem.

In contrast, bonds are usually highly illiquid despite their generally secure nature. In most cases, bondholders would have to wait till the maturity date of their bonds before they are allowed to withdraw their investments. This may be a problem should the individual require a sum of money to tide him past any unexpected emergencies.

Key Forex Benefit #3- Convenience

Last of all, foreign currency exchange trading is extremely convenient. Organized as an over-the-counter market, foreign exchange traders from all over the world are brought into contact each day via the internet. This means that traders would be able to trade with one another 24 hours a day, five days a week.

With no closing hours except on weekends, such an advantage would allow people who hold day jobs to be able to participate in foreign exchange trade after office hours. This provides greater flexibility as individuals would be able to focus on their work while yet being able to earn a supplementary income in their free time.

As a whole, there are many advantages associated with foreign currency exchange trading. While we have mentioned 3 excellent benefits of foreign currency exchange trading, these are by no means exhaustive. Such benefits are perhaps the main reason explaining the explosive growth in trade volume in the foreign exchange market in recent years.

Donald Saunders asked:


Most countries have their own national currency such as the US dollar, the UK pound, the Japanese yen and the Thailand baht and these are of course necessary for making payments for goods and services within each country’s borders. However, in a world where we are traveling more and more and where countries are increasingly trading with one another, foreign currency is required to pay for cross-border sales of goods and services. This means that there must be some mechanism in place to provide access to foreign currencies, so that payments can be made in a form that is acceptable to the seller, and thus the need for a foreign exchange market (or forex market which is simply short for FOReign EXchange).

In its simplest form foreign exchange refers to money which is denominated in a currency other than your own. For example, if an individual exchanges his own currency for the currency of another nation then he acquires foreign exchange. Of course we often think of foreign exchange in terms of tourism and most of us will have traveled abroad either on holiday or for business and exchanged currency on arrival at our destination to pay hotel and restaurant bills and for taxis, sightseeing and shopping. However, foreign exchange is not simply limited to the relatively small sums of money handled by tourists, but applies equally to larger transactions such as the exchange of hundreds of millions of US dollars when a US company buys another company which is based overseas.

Broadly speaking, in the US any money which is denominated in the currency of another nation would be termed as foreign exchange and it is important to remember that we are not necessarily talking here about cash. Foreign exchange can also consist of money which is available through a line of credit (such as a credit card) or that is held in the form of traveler’s checks. In other words, we still talk about foreign exchange for any negotiable instrument which is denominated in a currency other than the US dollar.

When we talk however about the foreign exchange market we are not really concerned with the exchange of small sums of currency by tourists, but are looking at foreign currency which is exchanged between an international network of foreign exchange dealers and is normally exchanged in what most of us would see as being very large sums of money. For example, one of main players in foreign currency trading is the major banks and here a US bank might need Japanese yen and thus deposit several million US dollars with a Japanese bank in exchange for Japanese yen.

Today an increasing number of small investors are able to participate in the foreign exchange markets and benefit from the profits to be made as the prices of national currencies rise and fall against one another. In general however the private forex trader does not himself trade in large sums of money but is able to trade by working through brokers who are themselves major players in the market.