The foreign exchange market is where currency trading takes place. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another.
The foreign exchange market that we see today started evolving when world over countries gradually switched to floating exchange rate from their erstwhile exchange rate regime. Increasing productivity in an economy should positively influence the value of its currency.
The purpose of FX market is to facilitate trade and investment. The need for a foreign exchange market arises because of the presence of multifarious international currencies such as the US Dollars, Euro, Japanese yen, Pound Sterling, etc..., and the need for trading in such currencies.
Presently, the FX market is one of the largest and most liquid financial markets in the world, and includes trading between large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing.
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