isi Halaman

About the Foreign Exchange Market

The foreign exchange (forex) market is where currencies are traded against each other, the change is precisely the operation of converting one currency into another currency. As in all markets, the price is fixed by confrontation between supply and demand. A convertible currency is known if it can be freely traded on the foreign exchange market.

The interplay of supply and demand of a currency on the foreign exchange market is up or down.For example, if the euro rises, the value of the euro into other currencies increases. Conversely,if the supply increases then the demand for euros decrease.

Where are the supply and demand of a currency?

If a French importer must pay his supplier in U.S. dollars, it will seek to buy dollars in the paying with euros, then there is supply and demand euros dollars. Conversely, a shareholder of a French company that sells its shares would try to get rid of dollars for euros that he can use at home, it would supply dollars and demand for euros.

The changes are said floating if the monetary authorities let the fluctuating exchange rates on account of variations in supply and demand of private agents. If,they enter against, into agreements requiring them to maintain their exchange rates to a level chosen by them, then the changes are called fixed.However, even in floating exchange rate, the European Central Bank (ECB) and the U.S. Federal Reserve System (Fed) may agree to stabilize the exchange rate euro-dollar if the euro increases by against the dollar, the ECB sells euros to buy dollars, which boosted the value of the latter, and if the dollar rises, the Fed can create dollars with which it will buy euros. But this is only a possibility, not an obligation.