Forex Capital Market 0
All You Need to Know About Forex Capital Market
Forex Capital Market
Forex market or foreign exchange market provides excellent investment opportunities with huge profit potential. Robust growth over the last few years has made the forex capital market the largest financial market in the world. Approximately 3.2 trillion USD worth of currency is traded each day in the forex market.
In the wake of World War II, several attempts were made to stabilize the world economy including the forex capital markets. Not all of those attempts were successful.
Of these attempts, the Bretton Woods Accord impacted the forex market the most. This accord pegged all world currencies to the value of the U.S. dollar. U S Dollar was the most stable currency in the world at that time. Plus it was pegged to the value of gold. The Bretton Woods Accord was mainly responsible for bringing back relative stability in the forex capital market post World War II.
In the year 1978, the free-floating system was officially introduced in the forex market. This allowed currency values to fluctuate to a greater degree in the forex market. Presently all the major world currencies are permitted to move independent of other currencies. As a result of this unique feature, numerous profit making opportunities exist in the forex capital market today.
Different types of financial instruments commonly used in forex capital market are:
a) Forward transaction: In forward transactions the buyer and seller agree on an exchange rate for any date in the future. The delivery and payment for forward transactions happens on a specific future date. Although the transaction occurs immediately, actual money changes hands on the agreed future date only.
b) Futures: Futures are forward forex transactions with standard contract sizes and maturity dates – for example, 100,000 U S Dollars for next October at an agreed rate. Futures are normally traded on an exchange created for this purpose. The average future contract length is approximately 3 months.
c) Swap: This is the most common form of forward transaction. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date.
d) Spot: Spot is a "direct exchange" between two currencies, which happens immediately. Spot transactions have the shortest time. Spot transactions involve cash and are not contracts.
Source : by Ian Drew
