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Forex currency exchange is a means of international currency trading which is practiced globally. It evaluates different currencies, with financial centers across the world playing the role of 'brokers' of trading by meeting the demands of distinctive sellers and buyers. Foreign currency exchange, though, is considered to be a money making business only for some people. To be precise, only those people who have an ability to bear the risk factor involved in their intuitive gamble.

One of the most typical transactions of foreign currency exchange is the purchase of one currency by paying a quantity of another, which matches the total depending on the conversion rates. There are two major benefits of such a market. Firstly, it backs investment and international trade by implementing conversion of currency. And secondly, it assists direct supposition in the currency value, or the carry trade.

The History of forex dates back to the ancient times:

From the era of Kollybistes, to the Medici family, to Alexander Brown and Sons, forex kept modifying with the change in time. A mixture of events took place in the 19th century, which then resulted in exchange markets to be closed down in 1973. Post 1980, trade started slowly within USA and UK, after which Iran made international agreements for oil-trade with some countries in 1991.

Market Participants:

The foreign Currency Exchange is divided into different levels of operation. Interbank market holds the top position, with smaller banks and multi-national corporations to follow. The financial activities of different banks and companies have played an important in the functioning of this market. Though commercial companies trade small amounts of money, the regular trade flow helps in the long-term positioning of the exchange rates of many currencies. Compared to these, central banks play a vital role in the stabilization of this market. Money supply, interest rates and inflation are controlled by central banks.

Investment management firms, Remittance companies and Retail foreign exchange traders play side roles to the regular functioning of the Forex currency exchange. One interesting component of this market is the use of hedge funds as a guesstimate. In this, the buyer or seller does not actually take the delivery in the end, rather, the transaction was just to speculate the movement of a particular currency. The uniqueness of the forex currency exchange market is due to many factors. Topographical dispersion, enormous amounts of trading volume, different exchange rate factors, use of leverage and 24 hour operations account as some of those factors.

Financial instruments:

When talking about forex currency exchange, we cannot ignore the financial instruments involved in it. Five in total, these instruments play different roles. Spot transactions represent direct exchange between two currencies. Consisting of a two-day delivery, this transaction has the most abbreviated time frame. Interest is not included as it deals with cash rather than a contract. Forward transaction is one in which a future date is decided by both parties, and then the transaction takes place on that date regardless of the exchange rates of that time. A swap transaction is when two parties keep exchanging currencies for an agreed length of time. This is the most common kind of forward transaction. Futures are systemized forward contracts, with average length of contract to be 3 months, and interest is included in the amounts. Lastly, a FX option gives the right to an owner to exchange one currency into another on a given date, and the exchange rate is pre-agreed too. This market is the largest and most liquid in the world for any kinds of options.

Exchange Rates:

There are many theories which explain the reasons of fluctuating exchange rates in this market. Theories such as Interest rate parity, Purchasing power parity and international/domestic fisher affect provide explanations, though faltering occurs due to the assumptions made in these theories. Also, the Asset market and balance of payments model help in constructing new exchange rates at regular intervals.

Factors such as economic policies and economic conditions, political conditions and market psychology cannot be ignored when it comes to the demand and supply of any currency. As of Pakistan, Rupee rate has been in a continuous decline against major currencies. According to analysts, this decline is due to oil transactions. Compared to gold, the opening of 2012 was similar to 2011, with upward slides coming in short-term basis. Recession seems to stay in this part of the world, with the political conditions making it worse for forecasters to predict the future

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