The Foreign Exchange MarketThe Foreign Exchange Market is where currency trading takes place. Foreign Exchange (FX) transactions involve one party purchasing a quantity of a particular currency in exchange for paying an equivalent value of another currency. The FX Market began to evolve during the 1970's when countries throughout the world gradually transitioned from the Bretton Woods fixed exchange rate system to the floating foreign exchange rate system that is now in place. Today, the global Foreign Exchange Market is one of the largest and most liquid financial markets in the world. It includes trading between central banks, large banks, currency speculators, corporations, governments, and other institutions. The average daily trading volume in the global Forex markets is constantly growing as currency trading becomes more and more popular. In fact, according to Euromoney's annual FX Poll, trading volumes increased by over 40% between 2007 and 2008. Click here to view the Euromoney Poll of the
foreign exchange market.
A central bank, reserve bank, or monetary authority is responsible for the monetary policy of a country. It is responsibile for maintaining the stability of the nation's currency and money supply. It also sets certain types of loan interest rates, and acts as a lender of last resort to the banking sector during times of financial crisis. The central banks that are responsible for maintaining the stability of the 7 major currencies, and that influence the FX Market most heavily are:
US Federal Reserve (Fed)
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