FX Rate Quotation and Interest Rate

Topic: FX Rate Quotation and Interest Rate

According to Archer (2007), there are a number of factors that are said to affect and influence the way in which present and future currency rate exchanges. In relation to this, applying the right and correct analysis, a number of arbitrage theories can be employed to come up with the right profit. Some of the common used arbitrage theories are triangular, locational, covered and uncovered interest arbitrages. In aIDition to this, foreign market exchange, FX or also known as the forex, is considered as the most influential financial market in the entire world.             To show this magnitude, it is asserted that close to one point five trillion of various currencies are traded each single day. This form of foreign exchange is conducted over the counter exclusively.  As noted by Jagerson & Hansen (2006), foreign exchange is geared and carried out with for a number of reasons. For instance, through foreign exchange, the value and strength of various currencies is asserted, this also helps in facilitating trade i.e. the buying and selling of the different currencies.  In the forex market, the currencies are traded in pairs.

This means that one currency is traded for another. The price or the value of a currency in a foreign exchange market is determined by the economic forces of a country, in relation to this, the demand and supply of the currency will also affect its demand (Saettele, 2008). For the players in the market to make a profit, they are involved with speculating the future movements of currency prices.  The speculation is done in relation with countries’ currencies to show which currency will gain value and the ones that will lose value.  Through this speculation, the traders then make their options on which currencies to purchase so as when they are sold in the future, they can be able tot make profits while at the same time selling those currencies whose value is expected to drop. Through arbitrage, prices are equalized in various markets in relation to a very low range, making it possible to purchase items at low ranges in different markets.

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