The Foreign Exchange Supply and Demand (part 8)

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The Foreign Exchange Supply and Demand (part 8)

In part 6 I wrote: “Why do you think the price of any good, any commodity or even the exchange rate of any nation varies?  It depends on two forces, they are the supply and demand for the good, the commodity or the exchange rate. ……..            

The value of a nation’s currency, under a floating exchange rate, is determined by the interaction of supply and demand. The following charts will ...

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The Foreign Exchange Supply and Demand (part 7)

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The Foreign Exchange Supply and Demand (part 7)

In part 6 I wrote: “Why do you think the price of any good, any commodity or even the exchange rate of any nation varies?  It depends on two forces, they are the supply and demand for the good, the commodity or the exchange rate. ……..             

The value of a nation’s currency, under a floating exchange rate, is determined by the interaction of supply and demand.  The following charts will ...

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The Foreign Exchange Supply and Demand (part 6)

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The Foreign Exchange Supply and Demand (part 6)

Why do you think the price of any good, any commodity or even the exchange rate of any nation varies?  It depends on two forces, they are the supply and demand.for the good, the commodity or the exchange rate.

If the supply is higher than demand this will cause low prices, and higher demand than supply will cause high prices.  So, for example if the supply of gold exceed the demand, the ...

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The Foreign Exchange different systems (part 5)

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The Foreign Exchange different systems (part 5)

I mentioned in previous editorial that Foreign exchange are traded in different formats because different countries have different types of FX systems.

Major currencies like USD, GBP, JPY, EUR and AUD adopt floating exchange rate (free float) regime. This is where the exchange rate is determined by supply and demand factors in the FX markets. Many other countries adopt floating exchange rate.  Other systems include :

  •  Managed float:  Exchange rate held within defined band ...
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The Foreign Exchange market (part 4)

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The Foreign Exchange Arbitrage (part 4)

FX Arbitrage transactions are possible when differences occur between buy and sell prices in markets traded across two or more dealers.

The arbitrageur (the person who does the arbitrage) is able to trade at the same time a  buy and sell transactions in two or more markets to achieve a risk free profit.

So what is arbitrage?

[sourced through http://en.wikipedia.org/wiki/Arbitrage_pricing_theory]

A trading strategy that is used by forex traders who attempt to make a profit ...

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The Foreign Exchange market (part 3)

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The Foreign Exchange market (part 3)

How much do you think the FX market turns over daily? Approximately 4 trillion dollars moves through the FX markets daily.

More than half of this does not involve trade, investment or central bank transactions and therefore may be described as speculative FX trades.

Speculative FX transactions are motivated by the pursuit of profit. The volume of speculative transactions implies that, at times, speculators are able to move the market price of currency. These transactions are always ...

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The Foreign Exchange market (part 2)

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The Foreign Exchange market (part 2)

The FX market participants are:

  • FX dealers and brokers
  • central banks
  • firms conducting international trade transactions
  • investors and borrowers in the international money markets and capital markets
  • foreign currency speculators
  • arbitrageurs

The FX market:

  • is a global market, operating 24 hours a day according to business hours across the time zones
  • consists of a vast and highly sophisticated global network of telecommunications systems that provide the current buy and sell rates for various currencies in dealing rooms located around the globe
  • involves larger ...
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The Foreign Exchange market (part 1)

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The Foreign Exchange market  (part 1)

For the next few weeks, I will write editorials about the Foreign Exchange market (FX).

To start with, this is the most exciting and non-dormant market.It is traded almost 24 hours a day and very high liquidity. Every nation on this planet has a currency that is used to buy and sell all kind of assets.

But how does one currency relate to another currency, traded in another country?

The currency of a country behaves in ...

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