Chapter 3

Buy, Sell, Risk! Users of Foreign Exchange Markets

In This Chapter

arrow Identifying the participants in foreign exchange markets

arrow Understanding the risk of multinational companies

arrow Understanding the risk of speculators

Diverse groups are involved in foreign exchange markets. This chapter identifies these groups, explains the nature of their involvement, and illustrates the risk associated with their involvement. Numerical examples guide you through the concepts and illustrate the risk taken by various participants in foreign exchange markets.

Identifying Major Actors in Foreign Exchange Markets

Multinational firms, speculators, and central banks are the important participants in foreign exchange markets. Multinational companies operate in different countries and, therefore, deal with a variety of currencies in their daily business. Speculators invest in assets denominated in different currencies and, therefore, buy or sell currencies. Central banks may be engaged in foreign exchange markets to increase or decrease the value of their currency with respect to other currencies.

Multinational firms

The term multinational firm refers to a wide range of domestic firms that are engaged ...

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