FOREIGN EXCHANGE MARKETS
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What is the Foreign Exchange Market?
The foreign exchange market (Forex/FX) is a global decentralized market where currencies are bought and sold. It is the largest financial market in the world by trading volume.
What is the largest financial market in the world by daily trading volume?
The foreign exchange market with over $7 trillion daily.
What does 'exchange rate' mean in the context of foreign exchange markets?
An exchange rate is the price at which one currency can be exchanged for another. It determines how much of one currency is needed to purchase a unit of another currency.
What is a 'loro' account in the context of forex banking?
A third-party account held by one bank on behalf of another bank.
What is a 'spot transaction' in the foreign exchange market?
A spot transaction is an agreement to buy or sell a currency at the current market rate, with settlement typically occurring within two business days (T+2).
What is a 'clean float' or 'free float' exchange rate system?
Exchange rate determined entirely by market forces without government intervention.
What is a 'forward contract' in forex markets?
A forward contract is an agreement to buy or sell a foreign currency at a predetermined rate on a specified future date, used to hedge against exchange rate risk.
What is a 'managed float' or 'dirty float' exchange rate system?
Market-determined rate with occasional central bank intervention to reduce volatility.
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