Foreign Exchange Policy: Function, Structure, and Transactions

Foreign exchange policy
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Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8
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INTRODUCTION
The era of globalisation has transformed global economies. It has enabled in economic
exchange of goods and services at global level. Along with it, there is exchange of currencies as
well. Each country deals in global trade with their own currency. Besides that, area of global
trade has increased to a great extent (Hsu, Taylor, and Wang, 2016). It has allowed small
nations as well to engage in global trade. This has resulted in dealing in financial and operational
transactions.
In this essay it will be described about function and structure of foreign market. Also, it
will be discussed on financial and operational transactions. Moreover, it will be explained that
how global currency market has changed size of global economies. In addition, it will be
described about forms of currency quotations used by dealers.
MAIN BODY
Foreign market refers to exchange of goods and services between one or more than one
countries. It is referred as global trade where one country buys or sells products and services all
over the world. Usually, an agreement is made between both nations which consist of terms and
conditions, procedure, currency exchange rate, etc. in which they both nation deal (Keefe, and
Shadmani, 2018). Basically, foreign exchange currency rate is decided through purchasing power
between two countries. Furthermore, in foreign exchange market buyers and sellers are also
involved in exchange of foreign currencies. It is a worldwide network which is known as Forex.
There are different functions of this market which is as follows : (Functions of foreign exchange,
2018)
Transfer function – this is common function of foreign market where there is transfer of funds
from one country to another. In this currency is transferred through conversion. Here, forex
market plays a significant role in it. They transfer purchasing power from one nation to another.
Credit function – it is a function in which forex provide a credit for short term to importers in
order to maintain smooth flow of transfer of products and services.
hedging function – this function contains many things. In this when two countries exchange
foreign currency by conversion, there are chances of gain or loss (Menkhoff, and Stöhr, 2017).
Thus, in order to prevent from loss forex provide a hedging function. In that actual loss can be
exchanged by forward contracts. It is a type of contract in which foreign exchange can be done
on fix date in 3 months. The date fixed is of the future and rate agreed is present one.
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