What is Foreign Exchange Market?
                     What is Foreign Exchange Market?
INTRODUCTION
The foreign exchange market is the marketplace in 
which participants are able to sell, purchase, 
exchange and theorize on currencies. 
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ABOUT FOREIGN EXCHANGE MARKET
Foreign exchange markets are made up of 
investment management firms, banks, central 
banks, hedge funds, commercial companies and 
investors and retail forex brokers.
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MAJOR PARTICIPANTS
The major participants involved in the foreign 
exchange market are forex brokers, commercial 
banks, and other legitimized dealers and monetary 
authorities. 
It is important to note that although participants may 
possess their own trading centres, the market in 
itself is spread worldwide.
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DEMAND FOR FOREIGN EXCHANGE MARKET
People demand foreign exchange because, they 
want to buy commodities and services from other 
nations; they want to send presents abroad and they 
want to buy financial assets of a particular nation.
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SUPPLY OF FOREIGN EXCHANGE 
Foreign currency flows into the host nation due to 
the following reasons:
● Exports by a nation lead to the buy its 
domestic commodities and services by the 
foreigners send presents or make transfers
● The assets of a host nation are bought by the 
foreigners
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WHAT IS FOREIGN EXCHANGE RATE?
Forex rate or foreign exchange rate is the cost price 
of one currency in terms of another currency. The 
currencies from the other nations are linked and 
associated, which enables the comparison of 
international costs and prices.
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TYPES OF FOREIGN EXCHANGE MARKET
The Major Foreign Exchange Markets −
● Spot Markets
● Forward Markets
● Future Markets
● Option Markets
● Swaps Markets
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FUNCTIONS OF 
FOREIGN EXCHANGE 
MARKET
TRANSFER FUNCTION
The basic and the most obvious function of the 
foreign exchange market is to transfer the funds or 
the foreign currencies from one country to another 
for settling their payments. The market basically 
converts one’s currency to another.
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CREDIT FUNCTION
The FOREX provides short-term credit to the 
importers in order to facilitate the smooth flow of 
goods and services from various countries. The 
importer can use his own credit to finance foreign 
purchases.
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HEDGING FUNCTION
The third function of a foreign exchange market is to 
hedge the foreign exchange risks. The parties in the 
foreign exchange are often afraid of the fluctuations 
in the exchange rates, which means the price of one 
currency in terms of another currency. 
Source: www.vedantu.com