Investigate Foreign Exchange Markets Research Paper

Investigate Foreign Exchange Markets - Research Paper Example The basic function of the foreign exchange market is to help in conversion of one currency to another. The fundamental thing here is to help achieve the goal of transferring of the purchasing power between two countries. This is made possible by the credit instruments. During the transfer process the foreign exchange market does the payments internationally. Another important function is the credit function which its role is to provide credit. This takes place both locally and internationally and it promotes foreign trade. The other function of foreign exchange market is the hedging process.The exchange rates in prices of one currency compared to another may vary and there might result to a loss or a gain. In that case, the party involved usually takes a high risk if there are huge amounts of net claims or liabilities which are to be met in foreign money. Exchange risks like such should be avoided or minimized if possible. The foreign exchange market provides the facilities of hedgin g to cub some of this problem encountered in the process. The forward market contributes in a big way to make it possible to hedge an exchange an exchange position. A forward contract goes for three months and it entails buying and selling of foreign exchange against another currencies during specific period. The primary market is where the securities are made and in this market is where firms sell new stocks and bonds to the public for the very first time. Initial public offering (IPO) is the same as the primary market. This is the pattern used in IPO: the company consults an underwriting firm to determine the legal and financial details of public offering. Then a registration statement is achieved from the authorities. The governing body must approve the statement which has got details on the price, benefits, and restrictions and this is issued to the people who are buying the securities (Machiraju, 2012). The purchasing power