Essays on Functions & Contribution of Foreign Exchange Market Assignment

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The paper "Functions & Contribution of Foreign Exchange Market" is a great example of a finance and accounting assignment. In the United States of America, the spot currency market operates under a direct quotation so that the value of the American dollar is stated at a given unit-measure of a given foreign currency. A direct quotation in the United States of America focuses on portraying how much USD it would take in order to buy a single unit of another foreign currency (Investopedia, n,d). In Europe, the spot currency market operates under an indirect quotation.

Indirect quotation result from a position; where the value of a given foreign currency is stated at a given unit of measurement of the overall US dollar (Investopedia, n, d). It shows the amount of foreign currency it would take to buy a one USD (Investopedia, n, d). This also goes for Australia that also uses the indirect quotation just like Europe since it is one of the Commonwealth currencies. Question 4 Functions & Contribution of Foreign Exchange Market It is important to note that the foreign exchange market avails the physical and institutional structures for which the money resource is a single country is exchanged for another country; a place where the determination of the rate of exchange between countries is done and where foreign exchange transactions are physically done (King, Osler & Rime, 2011).

The foreign exchange market conducts the following functions; first, it avails the transfer of purchasing power, which is a necessary phenomenon since international transactions basically involved parties in nations that possess different currencies. Secondly, it avails credit. This is because the movement of products between different nations would normally take lots of time, inventory in transit and should be financed at all times (King, Osler & Rime, 2011).

Third, it results in the minimisation of foreign exchange risk to a different party so that there is a minimal amount of losses incurred at any given period.

References

Coakley, J et al. (2005). Purchasing Power Parity and the theory general relativity; the first tests. Journal of International Money and Finance. 24, 293-316

Federal Reserve Bank of St. Louis. (2015). Why would a firm want to become a multinational’. Accessed from https://www.stlouisfed.org/on-the-economy/2015/april/why-would-a-firm-want-to-become-a-multinational

Investopedia, (n, d). Indirect quote. Accessed from http://www.investopedia.com/terms/i/indirectquote.asp

King, M,R Osler, C & Rime, D. (2011). Foreign exchange market structure, players and evolution. Working Paper. Accessed from https://www.unich.it/~vitale/Rime-2.pdf

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