FOREIGN EXCHANGE MARKET - Forex Management

Unlike commodity market where we see specific locations dealing various commodities, there is no specific locations for foreign exchange market. An American company importing goods from Germany with their price denominated in Deutschmark may buy marks in order to pay for the goods. An American company exporting goods to Germany, again with the price denominated in marks receives Deutschmarks which it may sell in exchange for dollars. The currency aspects of these transactions involve use of the foreign exchange markets. Foreign exchange market exists even in a remote village where the villager approaches a bank of his village to get converted the remittance received from his relative working abroad.
To that extent, foreign exchange market exists throughout the world. However, the volumes of transactions in these markets are so few that they are not well recognized as foreign exchange markets. Based on the volume of transactions carried out, we can distinguish foreign exchange markets like London, New York, Tokyo, etc. However, in most of these centers, the foreign exchange market has no central, physical market place. Business is conducted by telephone or telex. The main dealers are commercial banks and central banks.

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