Question

Examine how the size of the global currency market has changed with global economics

Answer 1

Solution:

Global currency market is a market where participant throughout the world exchange different currencies to facilitate trade. participant includes banks corporations, investement firms, central banks, Hedge funds and investors etc.its a very influential market with about $5 trillion trading volume.

foreign exchage becomes very demanding for facilitate trade globally.

Global economics changes very rapidly as these days countries depends on each other to fulfil their demands with great extent due to compatitive cost advantage. there is multilevel trade among countries of the world for which the need of forex is much demanded.

After world war II the countries strated reinstate their economic condition for which many trade agreements were made thoughout the world for which using national currency came in the way as a constrained. using national currency for international trade is very challenging as it may cause trade deficit or surplus. Innitially a system called 'Bretton Woods Exchange Rate System' was opted that was part gold standard and part reserve currency system, in this system Foreign central banks could exchange dollars for gold at the fixed rate of $35 per ounce.

But By 1971 the bretton woods system came to its end as it take the US economy in the trade deficit condition and the fixed-rate system had been phased out entirely and the currencies of Europe and Japan floated, changing daily in response to actual supply and demand. the world economy now became more sensitive towards its participants and they became more responsive to tackle trade deficit or surplus condition with floating exchange rates that controlled by demand and supply forces.

Therefore its been noticed that with the changed economic condition at the global level currency market need to be changed to facilitate autonomous international trade.