“, refers to the trading place engaged in, or is said to be different from each other exchange place.
Markets exist because: 1. Trade and investment: Importers and exporters pay in one currency when they import goods and charge in another currency when they export goods.
This means that when they settle their accounts, they accept and pay in different currencies.
So they need to convert part of what they receive into currency that can be used to buy goods.
2. Speculation: The relationship between the two currencies will change as the supply and demand of the two currencies change.
A trader can make a profit by buying a currency at one rate and selling it at a more favorable rate.
Speculation accounts for the vast majority of trading in foreign exchange markets.
3. Hedging: Due to fluctuations in exchange rates between two related currencies, companies that own foreign assets may be exposed to some risk when they convert those assets into their home currency.
When the value of a foreign asset in foreign currency is constant over a period of time, a gain or loss occurs when the value of the asset is converted into domestic currency if the exchange rate changes.
Companies can eliminate this potential gain or loss by hedging.
