When one nation's currency is traded for that of another it is referred to as foreign exchange, or Forex. Like any other market,the Forex market is determined by supply and demand. The value of each nation's currency (money) is determined by the supply and demand for that currency.
The rate of exchange varies constantly, and is determined by evaluating what one nation's currency is worth in relation to that of another nation's currency. This rate is typically set by first determining the value of a base currency such as the American Dollar in relation to the given trading country's current base currency value. Once the exchange rate is determined, it is multiplied by the amount to be traded.
The Forex market is a non-stop cash market where currencies of nations are traded, typically via brokers. Foreign currencies are constantly and simultaneously bought and sold across local and global markets and traders' investments increase or decrease in value based upon currency movements. Foreign exchange market conditions can change at any time in response to real-time events.
Foreign exchange is a needed operation in today's economic world. While many countries are what we would consider to be \"rich\" in natural resources, and another is sufficiently equipped to produce a number of manufactured items, no country is capable of being completely independent. International trade allows for each country to obtain the essentials needed to thrive, and thus establishes a basis for foreign exchange.
The solution then is international trade and if for e.g. USA imports microchips from Japan, then the payment that will be made to the firm in Japan will be in Japanas local currency and not in USAas. The purchaser will need to have Dollars exchanged for Yens to be able to carry out the transaction.
Forex trading investors, or currency traders, attempt to make a profit from the exchange of currency by holding one nation's currency until it is paid out at a higher ratio, then exchanging it. This type of transaction is routinely repeated continually while the trader monitors the trade rates in order to maximize profits.
In some instances, participants are interested in exchanging currency for reasons other than profit. Corporations that maintain international operations might need to exchange currency to pay foreign employees, to pay for foreign good and services, or to convert currency from other countries in which they have sold goods or services to that of their own. Although this is common, a sizeable number of participants are simply currency traders much like brokers in the stock market. They frequently monitor the changes in the exchange rates and attempt to benefit from even the smallest variations.
Forex market doesn't have any exchange center unlike the stock market. Forex trading seem to go after the sun around the world, from banks of the United States to other parts of the world like Australia, New Zealand, the Far East or Europe and back to the US some time later. Individual currency speculators can work during the day and trade in the evenings, taking advantage of the market's 24 hours long trading day.
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