3. International markets for currencies (Міжнародні валютні ринки)

International trade creates markets for different kinds of money. Such markets are called foreign exchange or foreign currency markets.

A foreign exchange market is a market where one kind of money is traded for a different kind of money. There are large numbers of foreign transactions such as buying goods abroad, visiting foreign country for any purpose. Corresponding nation in whose currency the transaction is to be fulfilled. The foreign exchange market provides the foreign currency against any national currency. However, it is to be understood that unlike other markets, this market is not restricted to any particular country or any geographic area. There are large numbers of dealers' instruments such as exchange bills, bank drafts, telegraphic transfers (TT), etc. There are certain other dealers such as brokers, acceptance houses as well as the central bank and treasury of the nation.

Changes in supply and demand in these markets change the rate at which one currency will be exchanged for another currency. As a consequence, the price of goods that are traded will change either because of a change in the price in the economy where they are produced or because of a change in the exchange rate.

The foreign exchange market assists international trade and investment by enabling currency conversion. For example, it permits a business in the United States to import goods from the European Union member states especially Eurozone members and pay Euros, even though its income is in United States dollars. It also supports direct speculation in the value of currencies, and the carry trade, speculation on the change in interest rates in two currencies.

International trade would be inefficient without foreign exchange markets.

4. International finance (Міжнародні фінанси)

The demand for foreign exchange is likely to have familiar downward slope, while the supply of foreign exchange will have to usual upward slope.

Exchange rate changes their own terminology. Depreciation of a currency refers to the fact that one currency has become cheaper in terms of another currency. The other side of depreciation is appreciation, an increase in value of one currency as expressed in another country’s currency.

Exchange rate change for the same reasons that any market price changes. Among the important sources are: relative income changes; relative price changes; changes in product availability; relative interest rate changes; speculation.

Places where foreign currencies are bought and sold are foreign exchange markets.

Significant changes occur in currency values, however, only when several of these forces move in the same direction at the same time.

One way to eliminate fluctuations in exchange rates is to fix their value. The easiest way to do this is for each country to define the worth of its currency in terms of some common standard. Under a gold standard (most popular standard), each country determines that its currency is worth so much gold.

A balance-of-payments deficit is an excess demand for foreign currency at current exchange rates. Balance-of-payments surplus is an excess demand for domestic currency at current exchange rates. With flexible exchange rates, the quantity of foreign exchange demanded always equals the quantiting supplied, and there is no imbalance.

Government may sell and buy foreign exchange for the purpose of narrowing rather than eliminating exchange-rate movements. Such limited intervention in foreign exchange markets is referred to as managed exchange rates, or, more popularly “dirty floats”.