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Foreign Exchange Market and Financial Management

The market for foreign exchange can be viewed as a two-tier market. One tier is the wholesale or interbank market and the other tier is the retail or client market. International banks provide the core of the FX market. They stand willing to buy or sell foreign currency for their own account. These international banks serve their retail clients, corporations or individuals, in conducting foreign commerce or making international investment in financial assets that requires foreign exchange. Please discuss the following questions:

Give a full definition of the market for foreign exchange.

What is the difference between the retail or client market and the wholesale or interbank market for foreign exchange?

Who are the market participants in the foreign exchange market?

How are foreign exchange transactions between international banks settled?

Solution Preview

Give a full definition of the market for foreign exchange.

Foreign exchange market is the market where participants are able to buy, sell, exchange or speculate on currencies. The members represent most currencies in the world. "The forex market is considered to be the largest financial market in the world" (Investopedia, 2013). Currency markets are usually very large and liquid. As such, they are considered among the most efficient financial markets. Liquidity is highly prized in investments. The market is not a singular exchange, but a network of global exchanges connected by computers throughout the world.

Banks and others use the currency to gain power and from that finance ...

Solution Summary

An overview of the foreign exchange market using the supplied questions in the assignment.

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