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Foreign Exchange Market and Financial Management

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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?

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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.

See Also This Related BrainMass Solution

International Financial Management

For your job as the business reporter for a local newspaper, you are given the assignment of putting together a series of articles on the multinational finance and the international currency markets for your readers. Much recent local press coverage has been given to losses in the foreign exchange markets by JGAR, a local firm that is the subsidiary of Daedlufetarg, a large German manufacturing firm. Your editor would like you to address several specific questions dealing with multinational finance. Prepare a response to the following memorandum from
your editor:

TO: Business Reporter
FROM: Perry White, Editor, Daily Planet
RE: Upcoming Series on Multinational Finance
In your upcoming series on multinational finance, I would like to make sure you cover several
specific points. In addition, before you begin this assignment, I want to make sure we are all
reading from the same script, as accuracy has always been the cornerstone of the Daily Planet. I'd
like a response to the following questions before we proceed:

1. What new problems and factors are encountered in international as opposed to domestic financial management?

2. What does the term arbitrage profits mean?

3. What can a firm do to reduce exchange risk?

4. What are the differences between a forward contract, a futures contract, and options?

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