21 September 2021

What is the Currency Market

By DICC Institute

Many people reading this article must not be aware of the Currency Market and how it functions in the real world. The currency market is also known as the Foreign exchange market which is a one-stop marketplace consisting of different currencies which can be bought and sold by people coming from all over the world. These people participate in this exchange market operating in a whole different jurisdiction around the globe. However, this market is kind of important as it plays a very pivotal role in the conduction of international trade with the involvement of the financial sector and then that serve companies as well as individual by enabling them to make a purchase, sell the goods and services which is dominated in form of the foreign currencies and with this the smooth flow of the capital is also been maintained.

The currency market operates 24/7 without stopping. Over here there is active participation in the form of large international banks, corporations, Government entities, Retail participants and many other people too. The market participants in this currency market enter with different objectives and together they try to make the market more of a liquid that serves quite efficiently to the people in the overall process. Now most of us already know that the currency market operates around the clock thus there are several opportunities available to the international banking system to handle the current account as well as the capital account transaction. With all this, the currency market is the driving force that is behind the vibrant global economies of the world. Till now many of you reading have understood the topic of today’s article titled as what is currency market and how that works. So if you are passionate about knowing stuff about foreign n exchange currency and the way the market operates then kindly do read this article till the very end. Let us learn a few things in-depth to make the concepts more clear and precise.

One more thing that is quite important to make note of is that the currency market is not only the single market that involves exchange but is a fully-fledged network of the global market which do not work simultaneously but work quite differently as per the time-zone mainly stating with Japanese markets followed by other places like Hong Kong, Singapore, India, Middle East Bahrain, United Kingdoms, USA, Canada and surely ending with Australia. Now let us see some of the major advantages as well as disadvantages of the Currency Market.

Table of Contents

Advantages of the Currency Market:

Some of the important advantages are as follow:

These bring liquidity of the money that enables a huge volume for the trade to happen with ample sources of employment as well as profits to various businesses.
They are so huge that small entities cannot impact its seamless flow of information that is the reason behind these markets operate in such a good fashion
It is kind of important to make some sort of foreign investment as this allows the currency for the overall investment in the country involved in the business.
With that, it also enables different currencies to be priced concerning many other countries that usually have stronger currency by the strengthening of the economy.
The currency market even enables various multinational corporations that have been engaged in cross border transactions at the risk of future receipts and the payment dominated in the form of foreign currencies.

Now moving further let us see some of the disadvantages of the currency market:

Disadvantages of the Currency Market:

Some of the disadvantages are as follows:

These are often controlled by some government agencies of the local currency as well as central banks of the local countries engaged in the forex translation to affect the overall exchange rates following the help of government policy resulting in some violent exchange rate movement. For instance, central banks of many countries decrease the supply of the local currency and with that price is even increased in terms of other active currencies.
With this, the risk is increased. One of the most prominent risks is the counterparty risk as the currency market is at the international platform and the failure at any point can cause a lot of difference as a whole.
As the sheer size of the currency they are largely unregulated despite any number of measures being taken are quite unpredictable.

Some of the important points about the Currency Market:

There are two sides of the Currency Market: The first one is the Buy-side which consist of many buyers of the foreign currencies as well forward FX contracts and the other one is the sell-side which mainly consist of various primary dealers in form currencies and originated for foreign exchange. Now due to some different time zones as well as geographical distribution of the forex centres that have been dealing in various currencies in several different centre worlds. It is kind of difficult to perceive, predict as well as forecast the various exchanges and the interest rates that keep on moving currencies in the market.