Please enable JavaScript.
Coggle requires JavaScript to display documents.
Foreign exchange market (FX or FX market) - Coggle Diagram
Foreign exchange market (FX or FX market)
Participants
Foreign exchange dealers
banks, and a few nonbank foreign exchange dealers that operate in both the interbank and client markets.
Dealers
stand willing to buy and sell those currencies in which they specialize by maintaining an inventory position in those currencies
Speculators and arbitragers
seek to profit from trading in the market and operate in their own interest
Central banks and treasuries
use the market to acquire or spend their country’s foreign exchange reserves as well as to influence the price at which their own currency is traded
Foreign exchange brokers
agents who facilitate trading between dealers.
consists of two tiers
the interbank or wholesale market
Individual transactions usually involve large sums.
the client or retail market
contracts are usually for specific amounts, sometimes down to the last penny.
The volume of transactions worldwide averages over $1 trillion daily.
The central institutions in modern FX markets are commercial banks with their foreign exchange departments
It has no central trading location and the transactions are conducted over the telephone or via an electronic network.
currency-hedging techniques
currency futures contracts
a futures contract to exchange one currency for another on a specified date in the future at a price (exchange rate) that is fixed on the purchase date.
currency swaps
an agreement between two parties to exchange two currencies at a certain exchange rate at a certain time in the future
currency options
a contract that grants the holder the right, but not the obligation, to buy or sell currency at a specified exchange rate during a specified period of time
option forward contract
In the event customers do not know when they will need foreign currency