Forex Trading: The Need Of Open World Economy
The modern world is global, and it has created a complex web of interconnectedness. We live in a world of an open economy where there is trade with other nations in goods and services. When goods move across the national border of any nation, there is also movement in the flow of money in the opposite direction, and here comes the role of Forex or Foreign Exchange. Forex refers to the rest of the world’s currencies other than the nation’s domestic currency.
The Forex trading market is a market where the national currencies are exchanged converted or traded with one another.
Foreign Exchange and Foreign Exchange Rate
It is not a real fact that every countries currency could be equal to the other, so there has to be one exchange rate at which one currency is exchanged for another for the trade and is known as the Forex rate.
Why is Foreign Exchange Demanded?
The forex demo account in the foreign exchange market helps one country in another country’s transactions and thus have greater importance at international level trading, payments, and receipts from the services provider and citizens.
Forex has demanded the payment of foreign goods and services. It is needed for :
- Foreign exchange is needed for Repayment of international loans
- It is required for investment in foreign countries
- It is the need for import of goods and services
- To direct purchases abroad
- For grants and donations
Sources of foreign exchange
There are many sources to get foreign exchange from other nations; some of them are :
- The export of goods and services from the rest of the world is an important foreign exchange source.
- Loans from the rest of the world are also needed for the fulfilment of foreign exchange.
- It also comes through grants and donations from the rest of the world.
- The people living on foreign soil are also amongst the contributors of foreign exchange through remittances.
Results of the Interaction between Economies through foreign exchange
Interaction with the economies of the world have increased the choices for the people of the different nations in different ways :
- One can choose between domestic goods and foreign goods, whether they are a consumer or a firm. This led to the product market linkage, which is the result of international trading.
- It is not only the consumer who is consuming, or the firms who are manufacturing are getting benefitted from this international trade, but the ones who are investing have the wide opportunity to choose between domestic assets and foreign assets, which constitute financial market linkage.
- Here firms can choose where to locate production and workers can choose where to work and where to not. This constitutes the factor market linkage.
In the world of interconnectedness and interdependency, one can easily get excess to the goods and services of the nation they want. The foreign exchange market has given the world a wide area to choose what they want and don’t. With this, the world is becoming home to all for what they want.