The Worlds Foreign Exchange Market
(FOREX) also knows as FX Market or in other words the Online Market Exchange, is the largest and oldest liquid market in the world. One of the major functions of FOREX is the conversion one countries currency to another countries currency through exchange. The FOREX is branched all over the world, but its major cities reside in New York, London, Singapore, and Tokyo. There are four major currency pairs that are generally used for investment purposes. They are: Euro against US dollar, US dollar against Japanese yen, British pound against US dollar, and US dollar against Swiss franc. The FOREX will usually display them in this form: EUR/USD, USD/JPY, GBP/USD, and USD/CHF. The US Dollar is the most valuable of currencies because it is accepted all over the world. If you were to from Canada and were going to purchase crops from Hungary it is acceptable to pay with US Dollars or Euros instead of Canadian Dollars, even though US has nothing to do with the transaction.
The determination of the foreign exchange rate as explained by the Federal Reserve Bank of New York, “At the heart of this complex market are the same forces of demand and supply that determine the prices of goods and services in any free market. If at any given rate, the demand for a currency is greater than its supply, its price will rise. If supply exceeds demand, the price will fall. The supply of a nation’s currency is influenced by that nation’s monetary authority, (usually its central bank), consistent with the amount of spending taking place in the economy. Government and central banks closely monitor economic activity to keep money supply at a level appropriate to achieve their economic goals.” (The basics of foreign trade and exchange, n.d.).