The foreign exchange market or foreign exchange market is where the value of the currencies in which you will be making international transactions is established.
As in most of the markets of financial, no specific physical location, so the currency market will exist as long as buyers and sellers agree to make a transaction at a specified price. However, the price has here the same meaning as in the other markets, since it is an exchange relationship, denominating exchange, ultimately, the number of units of one currency in terms of another or other currencies , determined by the confluence of supply and demand for foreign exchange.
The demand for foreign exchange is determined by imports (peseta currency exchange for payment of imports) and outflows (lending abroad, etc.), which depend on the following factors:
- Level of domestic or national income.
- Relative product prices.
- The level of domestic investment.
- Differential interests.
- Balance of the balance of payments.
The supply of foreign exchange is determined by exports and capital inflows, which depend on the following factors
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- Level of domestic or national income.
- Relative product prices.
- The level of domestic investment.
- Differential interests.
- Balance of the balance of payments.
The supply of foreign exchange is determined by exports and capital inflows, which depend on the following factors:
worldwide or international economic activity.
- Relative prices.
- Differential interests.
- Quality and competitiveness of domestic production.
This is how the exchange rate is determined in a perfectly free market, but as this is not reality, it has to go to various theories explaining their formation.
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