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How is foreign exchange being valued? What value decides which? Please describe how are valuations decided?
I do know it is a $4 Trillion a day volume market.
Please describe how are valuations decided.
Please avoid point blank answers such as “supply and demand” or “bid-ask” dictates pricing.
I do know most of the trading happens in London, weekdays… based on GMT.
I do know it is OTC and many big international banks play with money. Now the main question is: How does bank A and bank B who trade two currencies settle on pricing?
Relating it to the Bretton Woods agreement gives you more points!
My teacher pretends to know it but can’t really explain it. It gets frustrating that many online sites and my book only provides a very brief overview.
A very detailed answer will be most appreciated.
Bretton Woods is history and now irrelevant. It is supply and demand to a degree but now more perception. In BW days, currencies were traded because France needed to pay the US for TVs etc. Now the vast majority of trade is currency movements for investment or simply currency trading to make margin.
Currency is traded 24 hours a day since there are markets all over the world.
How does the price get set? it is based on perception – does the dollar look strong today? was there good news out? if so, people want the dollar and will pay to get it, sellers ask a little more, not too much because everyone will sell so the price rises incrementally or falls. If it falls too much, people will buy because it seems cheap so it picks up again. Purchasing power parity is meaningless too.
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