Foreign exchange market and participants

Foreign exchange market is the market for various countries currencies. It is also known as Forex market. The participants in the forex market (foreign exchange market) buy, sell, exchange and speculate on currencies.
       Foreign exchange markets are made up of banks , commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.
The participants in foreign exchange market are-

• Central banks
• Major Commercial banks
• Investment banks
• Corporations for international business transactions
• Hedge funds
• Speculators
• Pension and mutual funds
• Insurance companies
• Forex brokers

Factors affecting exchange rates:-
The following are some of the principal determinants of exchange rate between two countries.

1. Differentials in Inflation
2. Differentials in interest Rates
3. Current Account Deficits
4. Public Debt
5. Terms of trade
6. Political Stability and Economic Performance

Key points in forex or foreign exchange market are:-

1. In Forex market buying and selling is currencies, not goods and services.
2. In this market, buying of one currency is done by another currency.
3. Exchange rate is the rate at which one currency is exchanged with another currency. For example giving 70Rs to get one dollar.
4. Currencies appreciate and depreciate due to the market conditions. Appreciate is increase in the value of a currency and depreciate is decrease in the value of currency.