Foreign Exchange Markets and Globalization Essay

Foreign Exchange Markets and Globalization - Essay Example For corporations the four main roles of the foreign exchange markets are: currency conversion, currency hedging, currency speculation and currency arbitrage (Madura, 1992). Currency conversion is one of the most used functions of the exchange for corporations trading or doing business internationally. Entities use the exchange to convert one currency to another. From the purchase of finished goods or raw materials from foreign suppliers to being able to sell your product or service internationally being converting one currency to another efficiently is paramount to global business. The foreign exchange quotes two rates the spot and forward rate prices. The current daily exchange rate between two currencies is called the spot exchange rate (Bodie & Kane & Marcus, 2002). It is used for immediate payments or financial transactions. The value of any currency is realized by the interaction between the demand and supply of a currency relative to the demand and supply of other currencies. I t is a dynamic market where rates are constantly changing based on the volume of activity for any given currency. Since a lot of business transactions do not require payment until a later date, the forward exchange rate provides a currency exchange rate for 30, 60 and 90 days.