The Variables and Volatility of the Foreign Exchange Market

Posted on September 28, 2010

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Back in 1987, when I first began to follow currency flows, foreign exchange volume was trading at 250 billion dollars a day.  The largest of any market.  Today, the average daily volume approaches approximately 4 trillion dollars and still growing. Again, and still the undisputed heavyweight champion of the world.

I have been active in the fx community for a number of years and I have found that the foreign exchange market is in constant change and flux.  What affects markets today will not necessarily have the same influence tomorrow. But, if you don’t adjust to, and change with the market, you will soon be left behind and playing catch-up. The foreign exchange market has been one of the most flexible and adaptable markets ever. It is fostered by basic international trade, hedge funds, and speculation, and has evolved and re-evolved over and over to accommodate every situation. This includes, economic, political, and social scenarios which can reasonably be expected (and in a number of circumstances, unexpected) to arise in an interactive global economy. It creates the international standard for the exchange of value and is generally the most efficient and competitive way to conduct business. When a firm tries to circumvent the norm of how international business in general, operates, the results could impact dramatically to their bottom line.

How many times have you heard ” I am not affected by foreign exchange markets. I trade only in U.S. dollars. Many knowledgeable and experience business owners and executives think that if they price only in U.S. dollars, they are not affected by the movement and volatily of the U.S. dollar verus other currencies. The day you made your first international deal, is the day you took on your first foreign exchange position.
If you comprise a list of what is necessary and important to engage in an international transaction, the function of foreign exchange is either on the bottom or perhaps not even included on that list.

Let me state this clearly. Whenever an international transaction takes place, a currency conversion is going to follow. If you allocate this responsibility to your counterpart, there will always be a cost associated with, and please pardon the expression, “passing the buck”.  Taking charge of your own FX, and being aware of the market could save you untold amounts of money.  When you want to find out what the best rates are for the Euro, Pound, Yen, Peso, Rand, or any other currency, look to IMEX for the best advice around.

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