chap1 - trading foreign exchange a changing market in a...

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the early 1970s, with increasing internationalization of financial transactions, the foreign exchange market has been profoundly transformed, not only in size, but in coverage, architecture, and mode of operation. That transformation is the result of structural shifts in the world economy and in the international financial system. Among the major developments that have occurred in the global financial environment are the following: A basic change in the international monetary system , from the fixed exchange rate “par value” requirements of Bretton Woods that existed until the early 1970s to the flexible legal structure of today, in which nations can choose to float their exchange rates or to follow other exchange rate regimes and practices of their choice. A tidal wave of financial deregulation throughout the world, with massive elimi- nation of government controls and restrictions in nearly all countries, resulting in greater freedom for national and international financial transactions, and in greatly increased competition among financial institutions, both within and across national borders. A fundamental move toward institu- tionalization and internationalization of savings and investment , with funds managers and institutions around the globe having vastly larger sums available, which they are investing and diversifying across borders and currencies in novel ways and in ever larger amounts as they seek to maximize returns. A broadening and deepening trend toward international trade liberalization , within a framework of multilateral trade agreements, such as the Tokyo and the Uruguay Rounds of the General Agreement on Tariffs and Trade, the North American Free Trade Agreement, and U.S. bilateral trade initiatives with China, Japan, and the European Union. In a universe with a single currency, there would be no foreign exchange market, no foreign exchange rates, no foreign exchange. But in our world of mainly national currencies, the foreign exchange market plays the indispensable role of providing the essential machinery for making payments across borders, transferring funds and purchasing power from one currency to another, and determining that singularly important price, the exchange rate. Over the past twenty-five years, the way the market has performed those tasks has changed enormously. 3 The Foreign Exchange Market in the United States trading foreign exchange: a changing market in a changing world ALL ABOUT. .. CHAPTER 1
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This note was uploaded on 04/06/2012 for the course ECON 202 taught by Professor Sanjeev during the Spring '12 term at Indian Institute Of Management, Ahmedabad.

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chap1 - trading foreign exchange a changing market in a...

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