Exchange Market as a Part of International Financial Markets, Participants and Functions of Exchange Market. Matúš Czakó Ján Lajda. Structure:. Global Financial Markets Foreign Exchange Market Nature of Foreign Exchange market Functions of Exchange Market Types of Exchange markets
Global Financial Markets
Foreign Exchange Market
Nature of Foreign Exchange market
Functions of Exchange Market
Types of Exchange markets
It is a securities or commodities market where goods, both perishable and non-perishable, are sold for cash and delivered immediately or within a short period of time.
Forward contracts are personalized between parties and therefore not frequently traded on exchanges. The forward market is a general term used to refer to the informal market in which these contracts are entered and exited.
Itis meant as the market where exchange of derivatives takes place. Derivatives are one type of securities whose price is derived from the underlying assets
The Derivative Market can be classified as Exchange Traded Derivatives Market and Over the Counter Derivative Market.
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily
They often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates
3. Central banks:
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market.
4. Hedge funds as speculators:
About 70% to 90% of the foreign exchange transactions are speculative. the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency.
5. Investment management firms:
These use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.
6. Retail foreign exchange brokers:
Retail brokers and market makers typically trade against their clients and frequently take the other side of their trades. This can often create a potential conflict of interest and give rise to some of the unpleasant experiences some traders have had.
Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but currency exchange with payments.