Benefits and Risks of Foreign Exchange Market and Regulatory Entities

Foreign Exchange
Market

Contents
TASK..........................................................................................................................................................4
c) Benefits of foreign exchange market and identifying risk and challenges of selected market.............4
d) Entities regulate in foreign exchange market and mentioned objectives, who beneficial from their
regulatory activities.................................................................................................................................4
REFERENCES..........................................................................................................................................6

TASK
c) Benefits of foreign exchange market and identifying risk and challenges of selected market
Foreign exchange markets are a market where people can purchase, sell and exchange
currency. There are many participants in the market with different goals and motives. However,
they can be classified into a few categories to understand better. Central banks, hedge funds,
brokers, banks, exporters and importers are the largest players in this market. This market
provides these participants a platform to buy, sell and exchange foreign currency. They may
choose to do so for hedging, speculation and arbitrage opportunities (Kartal, Depren and Depren,
2021).
Foreign exchange markets are one of the biggest markets in terms of total value and
volume. Therefore, there are major risks and challenges that arises from it. Participants can buy
and sell currency through this market. They can also trade through derivatives (forwards, futures,
options, swaps). Derivatives are complex financial instruments that can provider high leverage to
participants. They are difficult to understand and traded in large volumes. These are major risks
for any participant looking to trade in the foreign exchange market.
Foreign exchange market is a market for currency, therefore there are many risks that
arises from it. Currency prices depend on a variety of macro-economic factors, which are
difficult to predict. The participants need to understand the global economic scenarios to trade in
foreign currencies. Trade policies, wars, pandemics, commodity prices can all impact the prices
of a currency (Ito and McCauley, 2020).
d) Entities regulate in foreign exchange market and mentioned objectives, who beneficial from
their regulatory activities
Foreign exchange market is the largest and most liquid market in the world. However, there isn’t
any central body that governs the forex market; instead, many government and independent bodies
supervise the market. For instance, The National Futures Association (NFA) and Commodities
Futures Trading Commission (CFTC) governs in USA, Financial Conduct Authority (FCA) in
United Kingdom. These bodies regulate forex markets by setting standards which all participants
must comply with. These regulations include being registered and licensed, undergoing regular