What are the primary functions of the foreign exchange market? Who are the participants in the market? How do global companies use the foreign exchange market to hedge against foreign exchange risks?© BrainMass Inc. brainmass.com May 20, 2020, 3:33 pm ad1c9bdddf
Foreign exchange refers to money denominated in the currency of another country.
Primary functions of foreign exchange market
1. They are needed to conduct international transactions like import and export of goods and services. It is a common mechanism for providing access to foreign currencies, so that payments can be made in a form acceptable to foreigners. In other words, there is need for "foreign exchange" transactions?exchanges of one currency for another.
2. It is also required to undertake foreign investment or to take foreign loan. For example direct investment" in plant and equipment, or in "portfolio investment," dealing across borders in stocks and bonds and other financial assets, while others may be in the "money market," trading short-term debt instruments internationally.
The major participants are International institutions, Financial institutions, Corporates, Individuals, Government etc.
Risk is the uncertainty that you may not earn your expected return on your investments. Multinational firms must constantly assess the business ...
What are the primary functions of the foreign exchange market? Who are the participants in the market? How do global companies use the foreign exchange market to hedge against foreign exchange risks?