Foreign Exchange Markets Summary You have been asked by a local college to write a lecture that explains the gold standard and addresses the functions of the world's major foreign exchange markets.

Essay by dwegnerCollege, UndergraduateA, May 2009

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Foreign exchange or FOREX, is the financial market in which participants are able to buy, sell, exchange, and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail FOREX brokers and investors. The FOREX market is considered to be the largest financial market in the world.

Currency markets are large and liquid; they are believed to be the most efficient financial markets. It is important to realize that the foreign exchange market is not a single exchange, but is constructed of a global network of computers that connects participants from all parts of the world. It can be best described as an over-the-counter market where buyers and sellers conduct business linked by telephones, computers, fax machines, and other means of instant communications. It also involves trading one nation's currency for the currency of another nation's.

With the increasingly widespread availability of electronic trading networks, trading on the currency exchanges is now more accessible than ever.

As previously noted the foreign exchange market is notoriously the domain of the government central banks, commercial banks, and investment banks, not to mention hedge funds and massive international corporations. At first glance, the presence of such heavyweight entities may appear rather daunting to the individual investor. But the presence of such powerful groups and such a massive international market can also work to the benefit of the individual trader. The FOREX offers trading 24-hours a day, five days a week, and the daily dollar volume of currencies traded in the currency market exceeded $3 trillion in 2007 (2007 Triennial Central Bank Survey of Foreign Exchange and Derivative Market Activity), making it the largest and most liquid market in the world. Many of the instruments utilized in FOREX - such as forwards and...