Title: THE FOREIGN EXCHANGE MARKET AND PARITY CONDITIONS
Abstract: The efficient operation of the international monetary system has necessitated the creation of an institutional structure, usually called the foreign exchange market. This is a market where one country’s currency can be exchanged for another country’s. Contrary to what the term might suggest, the foreign exchange market actually is not a geographic location. It is an informal network of telephone, telex, satellite, facsimile, and computer communications between banks, foreign exchange dealers, arbitrageurs, and speculators. The market operates simultaneously at three tiers:Individuals and corporations buy and sell foreign exchange through their commercial banks.Commercial banks trade in foreign exchange with other commercial banks in the same financial center.Commercial banks trade in foreign exchange with commercial banks in other financial centers. The first type of foreign exchange market is called the retail market, and the last two are known as the interbank market.We must first understand the organization and dynamics of the foreign exchange market in order to understand the complex functions of global finance. This chapter explains the roles of the major participants in the exchange market, describes the spot and forward markets, discusses theories of exchange rate determination (parity conditions), and examines the roles of arbitrageurs.
Publication Year: 2019
Publication Date: 2019-12-01
Language: en
Type: book-chapter
Indexed In: ['crossref']
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