Investigate Foreign Exchange Markets - Research Paper Example
The basic function of the foreign exchange market is to help in conversion of one currency to another. The fundamental thing here is to help achieve the goal of transferring of the purchasing power between two countries. This is made possible by the credit instruments. During the transfer process the foreign exchange market does the payments internationally. Another important function is the credit function which its role is to provide credit. This takes place both locally and internationally and it promotes foreign trade. The other function of foreign exchange market is the hedging process.The exchange rates in prices of one currency compared to another may vary and there might result to a loss or a gain. In that case, the party involved usually takes a high risk if there are huge amounts of net claims or liabilities which are to be met in foreign money. Exchange risks like such should be avoided or minimized if possible.
