Exchange Currencies In Foreign Exchange Market

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The foreign exchange market also know as Forex, is one of the most exciting, fast-paced markets around the world. The participants are able to buy, sell, exchange and conjecture on the currencies in the market. Currencies are important to the people because they need currencies to do the transaction on the foreign trade and business. For example, if you are living in Malaysia and you want to buy white wine from France, either you or the company must pay in euro currencies in order to get import from France. The same applies to travel. A French tourist in Japan can’t pay in euros to see Mt. Fuji because it is not locally accepted currency. Meanwhile, the tourist has to exchange euros for the local currency, which is yen, at the current exchange…show more content…
Thereafter, the foreign exchange market quickly established itself as the financial markets. Before the year 1998, the foreign exchange market was only available for those larger entities trading currencies for commercial and investment purposes through banks. Now, smaller financial institutions and retail investors are able to access a similar level of liquidity as the major foreign exchange banks, by offering an entry to the primary market through online currency trading platforms and the internet. The need of exchange currencies is the primary reason why the forex market is the larges and most liquid financial market in the world. It minimizes the size of other markets, even the stock market, with an average traded value around U.S $2,000 billion per day.The total volume always changes at all time due to the conditions of the weather, disaster, political policies, war and others. However, at August 2012, the Bank for International Settlements, knows as BIS, reported that the forex market had traded in an excess of U.S $4.9 trillion per…show more content…
Because it needs to avoid extreme volatility in the exchange rates, which would distort the decision making in the international transactions, foreign investment and particularly in trade. Due to the financial crisis in 1997, the exchange rates of the Malaysia Ringgit regarding to the United States dollar and Singapore dollar was very volatile. Apart from the oil price shocks, economic recession and currency speculation were the others main reasons influencing the volatility in the exchange rates. In particular, speculative activity on the ringgit also increase in volatility during the mid-1997s reflected the effects of several factors, the most important being the sharp descent in the terms of trade that induct the recession. The 1997 Asian financial crisis and 2008 U.S subprime crisis has made a strong pitch for dynamic linkage between the stock prices and exchange rates. During the crisis period, the depreciation of exchange rates and great fall in the stock market contributed to the collapes of emerging market. In 1998, Malaysia’s foreign exchange and stock markets experienced a sharp increased in the volatility. During this period, Korean Won and Indonesian Rupiah faced depreciation and follwing by Malaysian Ringgit. Meanwhile, the outflow of foreign short-term funds during this period contributed to a progressive tightening of

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