A Modern Economist’s Bartering System
Foreign Exchange Trading
Forex or foreign exchange is a growing industry in the economic market. Currencies are traded for another, thus making the foreign exchange market the largest in terms of cash. Because of trading between one bank to another, not to mention the trading between multinational corporations and government, between financial markets and institutions, cash is abundant and easily flows in foreign exchange trading.
Due to its various trading components (since there are a lot of foreign currencies in the international market over-all), the liquidity or easy cash flow of the market, huge bulk of traders and a 24-7 service transaction, the foreign exchange market is unique and is here to stay in the competitive world of business.
The foreign exchange market is not unified. There is no single dollar rate. Dollar rate varies from one country to another, this is due to the over-the-counter or OTC transactions that is practiced in most forex industries. There maybe different prices to a dollar, which is dependent on the bank, but generally, the rates are pretty much close.
The trading centers in Tokyo, New York and London are the centers of foreign exchange trading. However, all are interconnected. Tokyo may be the center for the Asian market, New York for the US and London for Europe but notice the chain of one to the other two. For example, the US session ends, then the Europe session begins followed by the Asian. It is a cycle and a change from one capital can affect the other two.
Foreign exchange can be considered as the modern economists’ barter exchange. A currency of one economy can be traded to another. The most heavily traded currencies are that of:
- the US dollar to the Euro
- the US dollar to the Japanese Yen
When the Euro became the official currency of the 12 of the 15 then members of the European Union, it was pitted against the dollar. The Euro enjoyed periods of ups and downs in comparison to the American dollar. As of most recent news, the dollar declined to a low as opposed to the Euro despite of the decline in the American deficit. The fact that well-established and developed countries have one currency as their official fiscal trading component, the Euro gets stronger than ever in the economic aspect.
It’s not only the three forex capitals that play a part in foreign exchange trading. Markets of other economies are free to join. In fact, even their banks have a role to play in the big economic picture. Commercial turn overs and large trading are catered by international banks on a daily basis. Some of these banks trade their currencies for dollars.
Commercial companies also sought the assistance of the forex market to pay for the obtained goods and rendered services. Commercial companies may have smaller amounts of currency transactions as opposed to banks, but these trades and exchanges among commercial companies are still necessary for the trading market. For example, a multinational company that is based on various locations through out the world may have an impact in the economic picture as a whole when it stops participating in the trading market. This is the another example of the mentioned scenario: that one capital session can affect the other two, so does one multinational company in any location can affect the forex trading as a whole.
Another example proving that countries are interconnected. One economy’s gold is another economy’s gain as well.