HISTORY OF FOREX
It’s began during the middle age where currency was traded though the international bank. This helped the Europeans spread currency trading throughout Europe and the Middle East. In 1875 there is a most essential event in the history of currency trading when the Gold Standard Monetary System was created. Before that, countries commonly used gold and silver as means of international payment. The Bretton Woods Agreement provided changes in exchange rates. In 1947 as the IMF began operating, the U.S. dollar served as the price of gold, fixed at $35 per ounce.
The U.S agreed to maintain that price for buying and selling gold. Eventually, the market economies of the world was set on dollar standard, The U.S dollar served as the world’s principal currency.However, the gold standard monetary system eventually broke down, during World War I.The Bretton Woods Agreement has a great part in the history of currency trading. Signed in 1944, the agreement replaced gold as the main standard of convertibility with U.S. dollar. Furthermore, the U.S. dollar became the new standard of the financial market.
This is how the dollar became the new global reserve currency.
Bretton Woods Agreement set the creation of International Monetary Fund and the World Bank. The agreement aimed at setting up international monetary stability by preventing free exchange of money across nations.In 1971 the Bretton Woods Agreement broke down and the modern foreign currency exchange was born.From there began the history of Forex market, as we know it today.
The Foreign Exchange Market
The foreign exchange market – also called forex, FX, or currency market – was one of the original financial markets formed to bring structure to the burgeoning global economy. In terms of trading volume it is, by far, the largest financial market in the world. Aside from providing a venue for the buying, selling, exchanging and speculation of currencies, the forex market also enables currency conversion for international trade settlements and investments. According to the Bank for International Settlements (BIS), which is owned by central banks , trading in foreign exchange markets averaged $5.1 trillion per day in April 2016.
Currencies are always traded in pairs, so the “value” of one of the currencies in that pair is relative to the value of the other. This determines how much of country A’s currency country B can buy, and vice versa. Establishing this relationship (price) for the global markets is the main function of the foreign exchange market. This also greatly enhances liquidity in all other financial markets, which is key to overall stability.
The value of a country’s currency depends on whether it is a “free float” or “fixed float”. Free floating currencies are those whose relative value is determined by free market forces, such as supply / demand relationships. A fixed float is where a country’s governing body sets its currency’s relative value to other currencies, often by pegging it to some standard. Free floating currencies include the U.S. Dollar, Japanese Yen and British Pound, while examples of fixed floating currencies include the Chinese Yuan and the Indian Rupee.