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Wednesday, August 15, 2012

Comprehending The Foreign Exchange Market

Exchange rates display, seen at Suvarnabhumi I...
Exchange rates display, seen at Suvarnabhumi International Airport, Thailand (Photo credit: Wikipedia)
By George Cohenalld

The foreign exchange market, or "forex," is where the rate of exchange among two countries' currencies is calculated methodically. It plays a major role in the world of finance, from an individual scale to a large, global scale.

Being able to evaluate the current value of one currency pair is a steady method that can keep the global financial trade afloat, despite the many issues that can have an effect on a nation's currency value.

Some factors, such as election of government figures in a country, can have an impact on that country's currency worth, depending on how these figures are seen by the international public.

Another factor would be how much a country imports and exports from and to other countries. If they tend to export more than import, their currency value will likely rise. Natural disasters can even cause a country's currency value to plummet. If there is destruction on a large scale in one country, particularly to its exported products, then its currency value will likely suffer as well.

The rate of exchange among two countries can also be affected by the balance of trade. On a standard basis, this should stay inside a scope that is satisfactory for both countries. This will lead to a forex rate that will only experience small changes. If there is a rapid change in the trade balance, it would lead to a marked change in the forex rate, which will benefit only one of the two countries.

Forex trading can also influence a person on a small scale. For instance you will need to exchange your local currency for that of another country if you are to go abroad, or if you are to purchase its goods and services. The current rate of exchange is what will determine the value for your money. For those who are not traveling, forex trading can still impact their lives, as the prices of commodities exported from other countries into one's native country are determined by the forex rate.

The foreign exchange market can work well for one country and badly for another. One aspect of this market is that there is always the state of instability and changes tend to be so frequent that you may notice a difference within a month or so.

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