FOREX and Foreign Exchange Systems - International Finance

in the foreign currency per dollar market, suppliers are

those who are exchanging dollars for foreign currency, they want other currencies, so selling dollars

in the foreign currency per dollar market, demanders are

those who are exchanging foreign currency for dollars, they want dollars, so they sell other currencies

if the exchange rate in the dollar market increases,

the dollar appreciates (foreign currency depreciates)

if the exchange rate in the dollar market decreases,

the dollar depreciates (foreign currency appreciates)

supply are buy or sell orders

sell orders

demand are buy or sell orders

buy orders

execution risk

the most important risk that forex traders deal with while arbitraging currencies: the possibility that the desired currency quote may be lost due to the fast-moving nature of forex markets

reasons why people buy/sell currencies

1. for the purchase of foreign goods

2. for the purchase of foreign assets

3. hedging or diversification

4. to hold as a reserve currency

5. pure speculation

6. managing an exchange rate system