The function of foreign exchange market
(1) as the hub of international financial activities. International financial activities include a series of financial activities caused by international trade, international lending, international investment and international exchange. These financial activities inevitably involve foreign exchange transactions, and only by buying and selling foreign exchange in the foreign exchange market can international financial activities be carried out smoothly. At the same time, the trading activities in the money market and the capital market often need foreign exchange trading, and the two can cooperate with each other to successfully complete the transaction, and the foreign exchange trading in the foreign exchange market has further promoted and promoted the trading activities in other financial markets to a great extent. Therefore, the foreign exchange market is the center of international financial activities.
(2) Adjust foreign exchange surplus and deficit, and adjust foreign exchange supply and demand. Any individual, enterprise, bank, government agency or even international financial institution can buy and sell foreign exchange in the foreign exchange market to adjust the surplus and deficiency. The adjustment of surplus and deficiency also includes the situation of selling one or more surplus currencies in exchange for one or more short currencies. Adjust foreign exchange supply and demand through foreign exchange transactions in the foreign exchange market.
(3) Payment and settlement between different regions. It is fast, convenient, safe and reliable to handle payment and settlement through the foreign exchange market.
(4) Using operational techniques to avoid foreign exchange risks. The existence of foreign exchange market provides convenience for foreign exchange traders to avoid or reduce foreign exchange risks by using certain operational skills, such as buying and selling forward foreign exchange options, swaps and hedging. , in order to minimize the adverse impact of market fluctuations on foreign exchange transactions, so as to achieve the purpose of hedging.
Main structural forms of foreign exchange market
The tangible foreign exchange market, also known as the specific foreign exchange market, refers to the foreign exchange market with a specific fixed place. This kind of market was first popular in continental Europe, so its organizational form is called continental model. The main characteristics of the tangible foreign exchange market are: First, the fixed place generally refers to foreign exchange exchanges, which are usually located in financial centers around the world. Second, both parties engaged in foreign exchange business conduct foreign exchange transactions within the specified time of each trading day. In the period of free competition, foreign exchange transactions in western countries are mainly concentrated in foreign exchange exchanges. However, after entering the monopoly stage, banks monopolized foreign exchange transactions, resulting in a decline in foreign exchange.
According to the degree of foreign exchange control, the foreign exchange market can be divided into free foreign exchange market, foreign exchange black market and official market.
Free foreign exchange market: refers to the market where the government, institutions and individuals can buy and sell any currency and any amount of foreign exchange. The main features of a free foreign exchange market are: First, the foreign exchange traded is not regulated. Second, the transaction process is open. For example, the foreign exchange markets in the United States, Britain, France and Switzerland are all free foreign exchange markets.
Black market of foreign exchange: refers to the market where foreign exchange is illegally bought and sold. The main characteristics of the foreign exchange black market are: First, it comes into being under the conditions of government restrictions or laws prohibiting foreign exchange transactions. Secondly, the transaction process is private. Because most developing countries implement foreign exchange control policies and do not allow free foreign exchange markets to exist, foreign exchange black markets in these countries are relatively common.
Official market: refers to the market where foreign exchange is traded according to the government's foreign exchange management regulations. This foreign exchange market has specific regulations on participants, exchange rates and trading processes. Official markets are more common in developing countries.
According to the scope of foreign exchange transactions, the foreign exchange market can be divided into foreign exchange wholesale market and foreign exchange retail market.
Foreign exchange wholesale market: refers to the behavior and place where banks conduct foreign exchange transactions. Its main feature is the large scale of transactions.
Foreign exchange retail market: refers to the behavior and place of foreign exchange transactions between banks, individuals and corporate customers.
The role of foreign exchange market
1 international settlement, because foreign exchange is a means of payment and settlement in international economic exchanges, settlement is the most basic function of the foreign exchange market.
The exchange function is to buy and sell currencies in the foreign exchange market, and to exchange one currency for another as a means of payment, thus realizing the effective conversion of purchasing power of different currencies. The main function of the international foreign exchange market is to provide a currency conversion mechanism through complete communication equipment and advanced management means, so as to transfer the purchasing power of one country to another country and deliver it to a specific transaction object, and realize the transfer of purchasing power or funds between countries.
3. Credit granting: As banks are engaged in foreign exchange business, it is possible to provide loans to importers and exporters by taking advantage of the time difference between foreign exchange receipts and payments.
4 hedging, that is, hedging futures trading. This is different from the purpose of speculative futures trading. It is very important for importers and exporters not to profit from price changes, but to prevent foreign exchange income from being lost due to future exchange rate changes. If the exporter has forward foreign exchange income, in order to avoid the possible risks caused by exchange rate changes, the foreign exchange can be sold as futures; On the contrary, importers can also buy foreign exchange futures in the foreign exchange market to meet the needs of future payment.
5 speculation, that is, buying and selling foreign exchange in anticipation of price changes. In the forward foreign exchange market, speculators can take advantage of exchange rate changes to make profits, which leads to "bulls" and? Short? Bet on the future market. ? Bull? If the exchange rate of a foreign currency is expected to rise, that is, it is bought at the current price, and when the exchange rate of the foreign currency rises at the time of forward delivery, it is pressed? Immediate results? If you sell the price immediately, you can get the difference of exchange rate changes. And vice versa? Short? It is expected that the exchange rate of a foreign currency will fall, that is, the foreign currency for forward delivery will be sold at the current price, and the price will fall after maturity. Immediate results? Buy it and make it up. This kind of speculation is carried out by taking advantage of the fluctuation of foreign exchange market in different periods. In the same market, you can also take advantage of the exchange rate differences in different markets to carry out arbitrage activities at the same time.