What is the Foreign Exchange Market?

Foreign Exchange is one of the most important pillars of the international economy today. With increasing progress and trade relations between countries all over the world, the need for forex has increased monumentally. This has been further egged on by the need for travel for further education, business and even pleasure. All these factors have led to the creation of a dynamic Foreign Exchange Market in the World today.

Foreign Exchange Market: Introduction

The Foreign Exchange Market is simply a marketplace that deals with sale, purchase and exchange of currencies from all over the world at a current or at determined prices on a global network.  The Forex market works round the clock. It constitutes of International Banks, commercial banks, exporters and importers, brokers, immigrants, tourists and investors. They are also responsible for bringing about trade between nations and are dealing with buying and selling of foreign currencies across the seas with ease and élan.

The Forex Market is known to be the most liquid financial market in the world. The Foreign Exchange Market is divided into two levels of access. The Interbank Foreign Exchange Market comprises of the largest commercial banks and security dealers and they are at the top. An important feature of the Foreign Exchange Market is its financial activities of companies seeking foreign exchange in order to pay for goods and services. While the main trading centres are New York and London, Hong Kong, Tokyo and Singapore are important centres.

Foreign Exchange Market in India

Forex trade is India happens at its Indian exchanges at the Bombay Stock Exchange and the National Stock Exchange. The trade here happens mainly in currency pairs. The most common pairs are with the Indian Rupee paired with the US dollars, the Euro, Great Britain Pound and the Japanese Yen. Just like the other forex markets, the Indian one is also a buzzing place for business, investors and tourists.

Terms used at the Foreign Exchange Market

Spot: A foreign exchange or FX spot is an agreement that includes cash rather than agreement and happens over the two-day delivery transaction as opposed to the usual three months.

Forward: This happens at a future date, decided by both parties, regardless of what rates the market holds at that particular time.

Swap: It is the most common type of forwarding transaction. Both parties exchange currencies for a certain length of time and on a later date swap the currencies.

Futures: Standardized forward contracts are usually for trading within the average contract length of 3 months.

Option: This is when you, as the owner will have the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date.

Nostro Account: A foreign currency account maintained by an Indian bank with a bank abroad.

Vostro Account: A rupee account of a foreign bank abroad with a bank in India.

Also Read: Everything you need to know about how to exchange foreign currency 

Foreign Exchange Market is a necessary requisite for trading in foreign currencies. Without this, it will be difficult to exchange currencies whilst travelling abroad or making any international payments. Thomas Cook is a great platform to buy, sell or exchange currencies. Their website is user-friendly and makes it extremely easy for people to get foreign exchange currencies while on the go.

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