Business and the Forex
© Copyright 2005 Michael Sanford
The business world is a complex web of supply and
demand. Money and goods, physical or otherwise, pass
through the global market every single day. To meet this
exchange between one country and another, foreign
exchange, or forex, was born. The term forex is used to
refer to transactions involving the conversion of money of
one country into that of another or to the international
transfer of money and credit instruments.
Foreign exchange, or forex, is used because different
nations have different monetary units, and the currency
of one country cannot be used for making payments in
another country. Because of trade, travel, and other
transactions between individuals and business
enterprises of different countries, it becomes necessary
to convert money into the currency of other countries in
order to pay for goods or services in those countries. The
transfer of money values from one country to another
and the determination of the price at which the currency
of one country will be surrendered for that of another is
one of the main functions of forex.
Forex is a commodity, and its price fluctuates in
accordance with supply and demand; exchange rates are
published daily in every major newspapers of the world.
When the exchange rate is floating, free of government
intervention, the rate of the forex, or the price of the
currency of one country in terms of that of another, will
depend on overall supply and demand and on the
relative purchasing power of the two currencies. The
forex value will depend on the competitive position of the
two countries in world markets. If country has a certain
commodity that another country is dependent on, its
forex will be significantly higher than the latter. Gold, oil,
and exports are just a few of these commodities
influencing a country's forex.
Forex is also dictated at times by speculation of dealers,
brokers, or others. What they predict becomes a major
influence on forex. However, the government has the
power to prevent the forex from crashing. Its gold value
and country's wealth raises help the forex value. The aim
of government's control is to limit the demand for and to
increase the supply of forex in order to maintain a stable
exchange rate. Control usually provides for allocating
forex only for approved imports and requires that all or
part of the forex derived from exports or other sources
be given to the central bank in exchange for local
currency.
Forex is seen as the trading tool of different countries. To
stabilize and increase the forex of one country will mean
a lot of economic changes. The proper allocation of funds,
the stock market condition and the nation's marketable
wealth will determine the future of its forex rate.
Understanding the forex rate is relatively simple. Using
one country's forex, i.e. the dollar, we can determine the
wealth standing of a country. Say the forex rate of a
pound to the dollar is 80, while the dollar to the pound is
65. This means that the pound is more stable and richer
that the dollar because of the 15 value difference.
The country's stability and political scene can also
influence it forex rate. Investors bring in a lot of money,
which equates to additional wealth for the country. Once
that country is not able to guarantee stability, political
and economy-wise, these people can take their
investments out and leave the forex rate crippled.
For more information please go to http://www.forex-trading-center.info/
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