The current stage of economic development is characterized by deep integration of globalization processes, as a result of which foreign relations between countries are strengthened. One of the consequences of this strengthening is the formation of the currency market because, as we know, almost every state maintains its sovereignty by using a unique currency. The United States uses American dollars, Great Britain uses pounds sterling, and in Russia, for example, citizens pay in rubles.
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The interaction between these and dozens more available currencies takes place in a currency market, a non-physical space for creating a stable monetary relationship between two or more parties (Froeb et al., 2018). While recognizing the absolute necessity of foreign currency as the backbone of international investment, it is essential to emphasize the need for a foreign exchange market.
An individual, company or state must track currency fluctuations in real-time to ensure the most profitable trade transactions. It is a known fact that the exchange rate of a foreign currency is not conservative at all and changes its value literally every second (Segal, 2021). These changes are influenced by many factors ranging from politicians’ pronouncements to government military actions (Ozturk & Ciftci, 2014). The foreign exchange market functions as a space to determine the exchange rate and thus facilitate the interaction between the parties. Moreover, with the help of the foreign exchange market, it becomes possible to make an efficient exchange from one currency to another.
The chaos in a currency market environment is usually controlled by dealers, of which banks are the backbone. Thus, whenever an individual wants to exchange dollars for, for example, pesos, he or she goes to a bank to make this exchange. Since the individual has made the exchange, it has become part of the global currency market. Thus, summarizing the key findings, it should be emphasized that forming a foreign exchange market is essential for managing exchange rates, for more profitable transactions, and, of course, for strengthening geopolitical and economic relations between states.
Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2018). Managerial economics — a problem-solving approach (5th ed.). Cengage Learning.
Ozturk, S. S., & Ciftci, K. (2014). A sentiment analysis of twitter content as a predictor of exchange rate movements. Review of Economic Analysis, 6(2), 132-140.
Segal, T. (2021). Currency fluctuations: How they affect the economy. Investopedia. Web.