The forex market is decentralized for trading and exchanging different international currencies. It is a virtual OTC (Over-The-Counter) market where traders digitally transact with each other via computer networks.
The forex market is open 24 hours, Monday – Friday. The major international centers for forex trading are New York, London, Frankfurt, Tokyo, Hong Kong, Zurich, Singapore, Paris, and Sydney.
Forex markets enable retailers and organizations to exchange international currencies daily, especially for global trade and travel.
Forex trading example, suppose an Indian firm imports automobile spare parts from a German firm; the Indian firm has to incur the import cost in Euros (EUR).
Assume the total procurement cost is EUR 50,000. Thus, at the current EUR-INR exchange rate of Rs 88.33, the Indian importer has to forgo Rs 44,16,700 to get EUR 50,000 to pay the German exporter.
Similarly, individuals require international currencies whenever they travel abroad. For instance, suppose you are traveling to the US. INR won’t work there as the legal tender of the US is dollars(USD).
Thus, you need to convert INR into USD to manage your living expenses during your stay in the US.
From the investment perspective, the forex market enables you to diversify your portfolio and hedge currency risks.