ABSTRACT
This chapter presents the main functions of the foreign exchange market and describes how to ensure against foreign exchange risk. It outlines key factors that determine the exchange rates and explains how to manage foreign exchange exposure. The chapter also describes international monetary systems and recognizes the roles of the International Monetary Fund (IMF). The term "foreign exchange market" refers to the market in which participants are able to buy, sell, exchange, and speculate on currencies. Different countries adopt and use different currencies at home. The exchange rate is the rate at which one currency is converted into another currency in the market. Providing insurance against foreign exchange risk is the other main role of the foreign exchange market. Political instability often brings about dumping domestic currency, usually accompanied by capital flight. The IMF's governance needs to be fully modernized to reflect the increasing role of emerging economies.
