Question

What is the foreign exchange market?

Short answer

The foreign exchange demand in the market on which other country's (international) funds (currency bank balances, banknotes, drafts, and checks) are traded.

Step-by-step solution

Concept introduction

It is not physically located in just one location.

It can be considered as a network of banks, foreign exchange dealers, brokers which travels globally.

Explanation

Foreign exchange market is a structure in which the exchange of different currencies takes place. The rate of exchange is generally determined by the demand and supply. Though the demand for currencies works normally as demand for goods and services, the supply can be controlled by the government. Currencies are demanded by buyers to pay for imports or to make investment in foriegn countries.