The international exchange of goods, services and capital requires the implementation of appropriate settlements, the implementation of which requires the exchange of one currency for another. As a result, importers, exporters, investors, trade intermediaries, other businessmen, tourists are forced to convert both national and foreign currencies for the final settlement of foreign trade relations. Currency trading is carried out in the markets for its exchange.
Foreign exchange markets are a combination of organizational, economic and legal relations regarding the purchase and / or sale of currencies. From an institutional point of view, the foreign exchange market is the official centers where it is performed purchase and sale of currencies at the exchange rate based on supply and demand.
Currency exchange operations have been carried out since ancient times. However, foreign exchange markets in the modern sense developed only in the 19th century. The following factors contributed to their development:
development of regular international economic relations; the creation of a world monetary system that imposes certain obligations on the participating countries with respect to their national currency systems; increased concentration and centralization of bank capital, development of correspondent relations between banks of different countries, the dissemination of the practice of maintaining current correspondent accounts in foreign currency; improving communications – telegraph, telephone, telex, allowing to accelerate and simplify contacts between foreign exchange markets and reduce the degree of credit and currency risks; development of information technology, high-speed transmission of messages about exchange rates, banks, the status of their correspondent accounts, trends in economics and politics.
Modern foreign exchange markets are characterized by the following main features:
the internationalization of foreign exchange markets has intensified on the basis of the internationalization of economic relations, the widespread use of electronic means of communication and the implementation of operations and settlements with them; operations are performed continuously during the day alternately in all parts of the world; the technique of foreign exchange operations is unified, settlements are carried out on correspondent accounts of banks; currency transactions with the aim of insuring currency and credit risks were widely developed; speculative and arbitration operations far exceed foreign exchange transactions, related to commercial transactions; the number of their participants has increased dramatically and includes not only banks and transnational corporations, but also other legal entities and individuals; currency instability, the course of which, like a kind of exchange goods, often has its own trends, independent of fundamental economic factors.
Foreign exchange markets contribute to the implementation and perform the functions of:
timely international settlements; insurance of currency and credit risks; the relationship between world currency, credit and financial markets; diversification of foreign exchange reserves of banks, enterprises, states; regulation of exchange rates (market and state-administrative methods); obtaining speculative profit by market participants in the form of currency differences; pursuing a monetary policy within the framework of state regulation of the economy, and more recently, as part of a coherent macroeconomic policy of intercountry groups.