The largest financial market in the world today is the forex exchange market. Participants in this market include large commercial banks, central banks, multinational corporations, governments and other financial institutions. In fact, an estimated 3 trillion US dollars are traded every day in global forex and other related markets.
The forex exchange market has come a long way since its beginnings. The first foreign exchange market was founded in 1944 through the Bretton Woods Agreement signed in New Hampshire. Forty five representatives from different countries met to discuss for the system will operate. It also led to the formation of the International Monetary Fund (IMF) which seeks to stabilize the economies of nations especially after the destruction brough about by the Second World War. This system also pegged the currency value of gold to the US dollar. A Chicago Bank denied Milton Friedman, a college professor, his request to sell British pound currency due to the provisions made during the Bretton Woods Agreement. Friedman intended to sell the currency and buy it back after the currency Declarations in order to obtain a profit. At this time, treaties of other nations are fixed against the dollar and the latter is priced $ 35 per ounce of gold. Because of the inherent disadvantages of this agreement, it was finally abolished in 1971 by US President Richard Nixon and from then, the US dollar was no longer convertible to gold.
After the abolition of the Bretton Woods Agreement, two other agreements were made to form and orchestrate policies regarding exchange exchange market operations. However, just like their precedent, they were later on abandoned. The Smithsonian Agreement aimed at enabling nations a greater fluctuation band for their treaties. The European Joint Float, on the other hand, was made to allow a greater fluctuation range for treaties. This was established by European countries including West Germany, France, Italy, Netherlands, Belgium and Luxembourg. The floating forex exchange system is now being used in countries. Based on this system, the values of treaties are not measured through gold but in terms of other treaties.
At present, the forex exchange market is considered to be the most lucrative way for corporations, hedge funds, banks and private investors to gain profits. It is also participating by government institutions through their central banks. The market is open for five business days in a week and twenty four hours a day. There are various financial instruments that are traded through the forex exchange market including spot, forward transactions, futures, swaps and options. Investment in any of these financial instruments will enable investors to transform a modest portfolio into a moderate one. Among these, the spot market has the largest share in terms of trading volume among all transactions of forex financial instruments.
Furthermore, the Bank of International Settlements (BIS) conducted a survey which disclosed that average daily turnover in forex exchange markets amounts to $ 1,880 billion. As of May of 2006, the top currency trader is the Deutsche Bank followed by the UBS AG and Citigroup in second and third place, respectively. As of April 2006, average global turnover reached $ 2.7 trillion according to data obtained from the major forex trading centers located in New York, London, Tokyo and Singapore.