Foreign exchange market

Any one country’s currency is a legal tender only within its national boundaries. To trade beyond these boundaries involves exchange of monies.

Currencies can be bought or sold in the Foreign Exchange Market. The Foreign Exchange Market is the oldest and also the largest international market in the world. The Market performs two major functions: it facilitates the foreign exchange needs of exporters and importers, and it enables individuals, corporations and governments to obtain a desired currency mix of their portfolios.

Trading in the Market occurs 24 hours a day in various centres around the world The exchange market is global in character, it does not have one centralized location; trading is concentrated in a handful of centres: London, New York, Tokyo, etc. The great majority of foreign exchange trading takes place in the interbank market between traders or market makers who represent large commercial banks or other financial institutions.

The market consists of three major sectors: the spot market, the forward and futures markets and the currency options market. Somewhat more than half of all transactions are spot deals, they are transactions which call for the delivery of the two currencies exchanged within two business days.

The remainder of the deals can be classified as outright forwards, swaps, futures and options. Such transactions are performed by customers who do not know when they will need foreign currency to overcome the growing exposure to currency risks in the conditions of foreign exchange rate volatility.

The delivery of the individual currencies involved in a foreign exchange transaction typically takes place through the payment systems of the two countries whose currencies are traded. The reliance on the domestic currency payment system of individual countries for the clearing and settlement of foreign exchange transactions means that the stability and integrity of the global exchange market depends on both the soundness of the individual counterparties and the robustness of national payment systems.

Stock markets

Stock Markets are the means through which securities are bought and sold. .

The largest, most active and best organized markets were established in Western Europe and the United States. .

Members of stock exchanges drew up rules to protect their own interests and to facilitate the business to be done by creating an orderly and regulated marketplace. Stock exchanges emerged as central elements in the financial systems of all advanced countries. Potential investors, insurance companies, pension funds, governments and corporate enterprises see securities as a cheap and convenient means of finance .An investor who purchases new securities is participating in a primary financial market. An investor who resells existing securities is participating in a secondary financial market.

There are two basic types of stock markets – (1) organized exchanges, like the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE), and (2) the less formal over-the-counter markets.

The organized security exchanges are tangible physical entities, which have specially designated members and elected governing bodies – boards of governors.

In contrast to be organized security exchanges, the over-the-counter market is an intangible organization. It is a network of security dealers who buy and sell securities from each other, either for their own account or for their retail clients. The over-the-counter market is normally conducted by telephone and computer reporting of price quotations between brokerage firms that “make a market”: that is, agree to buy and sell a particular security. Securities that are not listed on exchanges are traded “over-the-counter”. In general these include stocks, preferred stocks, corporate bonds, and other securities.

Investors need complete and reliable information about stocks and markets. In addition to the listings, the financial pages of newspapers in all countries contain price quotations and share indexes which give a broad indication of how the stock market, or a segment of the stock market, performed during a particular day.