ABSTRACT
This chapter examines how the foreign exchange market works. It describes the most important players, describes the components of this institution, and offers an explanation of why and how traders buy and sell currencies. The foreign exchange market lets firms and individuals issue and settle foreign currency denominated payables and accept receivables to be settled in terms of foreign exchange. Central and commercial banks, multinational corporations, and individual speculators and arbitrageurs are the most active players in the foreign exchange market. In the Eurocurrency market, the commercial banks, which are also known as Eurobanks, are able to accept foreign currency deposits that are known as Eurodeposits. The spot market is an interbank market where the participants trade currencies for immediate delivery or release in a period which is not to exceed 48 hours at a pre-agreed price known as the spot rate.
