The foreign exchange market

The foreign exchange market is divided into a spot market and a forward market. In 1999, the year that the Economic and Monetary Union (EMU) came into force and a common currency – the euro – was introduced, the European foreign exchange market changed drastically. The currency of one country is traded against the currency of another country on the foreign exchange market. The equilibrium price on this market is the foreign exchange rate, which people can define as the price of the currency of one country expressed in the currency of another country. The foreign exchange market consists of two segments: the spot exchange market and the forward exchange market. The foreign exchange market has its own terminology for exchange rate increases and decreases. It varies according to the type of exchange rate system. Currencies on the forward market are exchanged after a period of time.