Foreign Exchange Market

David Hudson

A foreign exchange market is the institution for the exchange of one state's currency with that of another state; actually, “the market” is made up of many different markets because the trade between individual currencies—say, the euro and the U.S. dollar—each constitutes a market. The foreign exchange (or forex or FX) markets are the original and oldest financial markets and remain the basis upon which the rest of the financial structure exists and is traded in: Foreign exchange markets provide international liquidity, preferably with relative stability. There are two key related governance issues: (1) systemic governance, that is, the international monetary system, and (2) the governance problems faced by individual governments given the currency markets. The foreign exchange market is a twenty-four-hour over-the-counter (OTC) and dealers' market, meaning that transactions are completed between two participants via telecommunications technology. The currency markets are also further divided into spot markets—which are for ...

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