Definition of Foreign Exchange

1. Foreign exchange refers to buying one currency and selling another currency simultaneously in the over-the-counter market.

2. Currency refers to a trading unit issued by a national government or central bank, with the value of currency as the measurement unit for transactions.

3. The benchmark currency refers to the first currency in a currency pair, as well as the currency that remains fixed and unchanged when determining the price of a currency pair. In terms of daily trading volume in the foreign exchange market, the US dollar (USD) and euro (EUR) are the most important benchmark currencies. The pound sterling (GBP), also known as Sterling, is the third benchmark currency. Currency pairs based on the US dollar include the US dollar against the Japanese yen, the US dollar against the Swiss franc, and the US dollar against the Canadian dollar; The currency pairs based on the euro include the euro against the US dollar, euro against the Japanese yen, euro against the British pound, and euro against the Swiss franc. GBP is the benchmark currency for the GBP USD and GBP JPY currency pairs. The Australian dollar (AUD) is the benchmark currency for the AUD/USD currency pair.

How does the foreign exchange market operate?

Unlike most financial markets, the foreign exchange market does not have a specific trading venue. The operation of the entire foreign exchange market is based on an electronic network between banks, institutions, and individuals. According to the time difference, foreign exchange trading starts from Sydney every day and then turns to Tokyo, London, and New York.

What is the impact on foreign exchange prices?

The foreign exchange market and prices are mainly influenced by international transactions and investment flows. To a certain extent, foreign exchange prices are also influenced by the economies and policies of various countries, such as interest rate adjustments, inflation, and political turmoil (which seriously affect the stock and bond markets).