Foreign Exchange Market.
                     FOREIGN 
EXCHANGE 
MARKET
INTRODUCTION
The foreign exchange market is an over-the-
counter (OTC) marketplace that determines 
the exchange rate for global currencies.
Source: www.investopedia.com
LARGEST 
FINANCIAL MARKET
It is, by far, the largest financial market in the 
world and is comprised of a global network of 
financial centers that transact 24 hours a day, 
closing only on the weekends.
Source: www.investopedia.com
UNDERSTANDING THE 
FOREIGN EXCHANGE 
MARKET
The foreign exchange market also called 
forex, FX, or currency market was one of the 
original financial markets formed to bring 
structure to the burgeoning global economy.
Source: www.investopedia.com
FOREX 
LEVERAGE
• The leverage available in FX markets is one 
of the highest that traders and investors can 
find anywhere. Leverage is a loan given to an 
investor by their broker. 
• With this loan, investors are able to increase 
their trade size, which could translate to 
greater profitability. A word of caution, 
though: losses are also amplified.
Source: www.investopedia.com
INTERBANK 
MARKET
• The interbank market is a network of banks 
that trade currencies with each other. Each 
has a currency trading desk called a dealing 
desk. 
• They are in contact with each other 
continuously. That process makes sure 
exchange rates are uniform around the 
world.
Source: www.thebalance.com
RETAIL MARKET
• The retail market has more traders than the 
Interbank Market. But the total dollar amount 
traded is less. The retail market doesn't 
influence exchange rates as much. 
Source: www.thebalance.com
ROLE OF 
CENTRAL BANKS
• Central banks don't regularly trade 
currencies in foreign exchange markets. But 
they have a significant influence. 
• Central banks hold billions in foreign 
exchange reserves. Japan holds around $1.2 
trillion, mostly in U.S. dollars. 
Source: www.thebalance.com
THE DEMAND 
FOR CURRENCY
• The demand for currencies is derived from 
the demand for a country’s exports, and from 
speculators looking to make a profit on 
changes in currency values.
Source: www.economicsonline.co.uk
THE SUPPLY OF 
CURRENCY
• The supply of a currency is determined by 
the domestic demand for imports from 
abroad. 
• For example, when the UK imports cars from 
Japan it must pay in yen (¥), and to buy yen 
it must sell (supply) pounds. 
Source: www.economicsonline.co.uk
HOW DO CURRENCY 
MARKETS WORK?
• Unlike shares or commodities, forex trading 
does not take place on exchanges but 
directly between two parties, in an over-the-
counter (OTC) market. 
• The forex market is run by a global network 
of banks, spread across four major forex 
trading centres in different time zones.
Source: www.ig.com