Chapter 1

The Foreign Exchange Market

Abstract

Foreign exchange trading refers to trading one country’s money for that of another country. The kind of money specifically traded takes the form of bank deposits or bank transfers of deposits denominated in foreign currency. The foreign exchange market typically refers to large commercial banks in financial centers, such as New York or London, that trade foreign-currency-denominated deposits with each other. This chapter provides a big picture of foreign exchange trading and particularly covers the details of the “spot market,” which is the buying and selling of foreign exchange to be delivered on the spot as opposed to paying at some future date. Major issues discussed are trading volume, geographic ...

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