• The foreign exchange market is an over-the-counter

(OTC) global marketplace that determines the exchange

rate for currencies around the world.
• It is the largest (in terms of trading volume) and the
most liquid market in the world.
• is made up of the commercial banks operating in the
country. All are members of the Bankers Association of
the Philippines.
• The Bangko Sentral ng Pilipinas, as provided for in Section 80 of
the Central Bank Act, requires the banks to report the volume and
composition of their purchases and sales of gold and foreign
exchange each day and must furnish such additional information
with reference to the movements in their accounts in foreign
currencies.
• The Monetary Board of the Bangko Sentral may also require other
persons and entities to report to it currently all transactions or
operations in gold, in any shape or form, and foreign exchange.
The Bangko Sentral intervenes indirectly in the foreign exchange
market. It purchases or sells foreign exchange through one of the
government-owned commercial banks.
• On average, the daily volume of transactions on the forex market
totals $5.1 trillion, according to the Bank of International
Settlements’ Triennial Central Bank Survey (2016).

• The BIS Triennial Central Bank Survey is the most comprehensive

source of information on the size and structure of global foreign
exchange (FX) and over-the-counter (OTC) derivatives markets.
The forex market major trading centers are located in
major financial hubs around the world, including New
York, London, Frankfurt, Tokyo, Hong Kong, and Sydney.
For this reason, foreign exchange transactions are
executed 24 hours a day, five days a week (except
weekends). Despite the decentralized nature of forex
markets, the exchange rates offered in the market are the
same among its participants, as arbitrage opportunities
can arise otherwise.
• Currencies are always traded in pairs, so the "value" of
one of the currencies in that pair is relative to the value
of the other.
• Example: This determines how much of country A's currency
country B can buy, and vice versa. Establishing this relationship
(price) for the global markets is the main function of the foreign
exchange market. This also greatly enhances liquidity in all other
financial markets, which is key to overall stability.
• Purchases and sales of foreign exchange are conducted at the
Foreign Exchange Trading Center from 8:30 to 9:00 in the morning
of every banking day. All purchases and sales of foreign exchange
among member banks, whether spot or forward, are posted on a
trading board.
• Bids and offers received for posting on board are not allowed after
the 25th minute of the trading session. Withdrawals of bids and
offers already posted on the board are not allowed after the 25th
minute. The last five minutes of each session are devoted to the
finalization and perfection of the bids and offers posted on the
trading board.
• The foreign exchange market is probably one of the most accessible
financial markets. Market participants range from tourists and amateur
traders to large financial institutions (including central banks)
and multinational corporations.
• Also, the forex market does not only involve a simple conversion of
one currency into another. Many large transactions in the market
involve the application of a wide variety of financial instruments,
including forwards, swaps, options, etc.
 ACTIVITY

In your notebook, number it 1 to 10 and give at least 10

names of currencies that you know, and if you get the five
most traded currencies in the world, an additional 5 points to
make it a total of 15 items.

Work for 5 minutes!

• The most traded currencies in the world are the United
States dollar, Euro, Japanese yen, British pound, and
Australian dollar.
• The US dollar remains the key currency, accounting for
more than 87% of the total daily value traded.
• The most liquid trading pairs are, in descending order of
liquidity:
1.EUR/USD
2.USD/JPY
3.GBP/USD
1. Spot Forex Market. The spot market is the immediate
exchange of currencies at the current exchange. On the
spot. This makes up a large portion of the total forex
market and involves buyers and sellers from across the
entire spectrum of the financial sector, as well as those
individuals exchanging currencies.
2. Forward Forex Market. The forward market involves an
agreement between the buyer and seller to exchange
currencies at an agreed-upon price at a set date in the future.
No exchange of actual currencies takes place, just the value.
The forward market is often used for hedging.
3. Futures Forex Market. The futures market is similar to
the forward market in that there is an agreed price at an
agreed date. The primary difference is that the futures
market is regulated and happens on an exchange.This
removes the risk found in other markets. Futures are also
used for hedging.
 HISTORY OF THE FOREIGN EXCHANGE MARKET
• The first true forex market was in Amsterdam, approximately 500 years
ago. The exchange allowed people to freely trade currencies to stabilize
exchange rates.
• In 1875, the gold standard was implemented, meaning countries were
only allowed to print currency equal to the amount of their gold
reserves. Gold was the metal of choice due to it being rare, malleable,
tough to corrode, and hard to obtain.
 HISTORY OF THE FOREIGN EXCHANGE MARKET
• In 1913, in London, there were 71 forex trading firms, an increase from
three in 1903. But the gold standard could not hold up during the world
wars, due to countries having to print more money to finance expenses.
• After World War II, the Bretton Woods system was established. It called
for most currencies to be pegged to the U.S. dollar, which was backed by
gold reserves.
 HISTORY OF THE FOREIGN EXCHANGE MARKET
• In 1971, President Nixon announced a freeze on the dollar's convertibility
to gold due to rising inflation and a possible gold run. In 1973, the gold
standard was completely abolished and the U.S. dollar was no longer
backed by gold reserves, and foreign exchange switched to a free-floating
system. Currencies were free to peg to any currency they chose or to
remain unpegged and allow the supply and demand of the currency to
determine its value.
1. What Are the Functions of Foreign Exchange?

2. What Is the Importance of the Foreign Exchange

Market?
1. What Are the Functions of Foreign Exchange?
✓facilitate currency conversions, manage foreign exchange risk
through futures and forwards, and help speculative investors earn a
profit from FX trading.
2. What Is the Importance of the Foreign Exchange Market?
✓Foreign exchange markets serve an important function in society
and the global economy. They allow for currency conversions,
facilitating global trade worldwide which can include investments,
the exchange of goods and services, and financial transactions.
• Forex trading amounts to approximately $5 trillion per day.
• There are several distinct groups of participants in the forex market. The
largest group of forex traders, in terms of the total dollar value of trading
that they account for, is comprised of commercial and investment banks.
Banks conduct a large amount of currency trading on behalf of their
customers who are involved in international business and trade operations.
They also serve as market makers in forex trading and trade heavily in their
own accounts. (If a banker ever cautions you against forex trading, you
might want to ask them why, if forex is such a bad investment, their bank
invests such huge sums in the forex market.)
Governments, through their central banks, are also major
players in the forex market. The central bank of a nation
will often adopt large positions of buying or selling its
own currency in an attempt to control the currency’s
relative value in order to combat inflation or to improve
the country’s balance of trade. Central bank interventions
in the forex market are similar to policy-driven central
bank interventions in the bond market.
Large companies that operate internationally are also substantially
involved in forex trading, trading up to hundreds of billions of
dollars annually. Corporations can use the forex market to hedge
their primary business operations in foreign countries.
For example, suppose a U.S.-based company is doing a significant
amount of business in Singapore, requiring it to conduct large
business transactions in Singapore dollars. In that case, it might
hedge against a decline in the relative value of the Singapore
dollar by buying the currency pair USD/SGD (US dollar vs.
Singapore dollar).
• Last are individual forex traders, speculators who
trade the forex market seeking investment profits. This
group includes a disparate cast of characters,
from professional investment fund managers to
individual small investors, who come to the market with
widely varying levels of skill, knowledge, and resources.
For further details, browse the official website of the BSP and read the following, which is related to

✓General Policy
✓Transfer of Currencies into or out of the Philippines
✓Resident to Resident Foreign Exchange Transactions
✓Non-trade Account Transactions
✓Trade Transactions
✓Foreign Loans and Guarantees and other Financing Schemes/Arrangements
✓Foreign investments
✓Buying and Selling of Gold
 REFERENCES

Website:
https://www.investopedia.com/terms/forex/f/foreign-exchange-markets.asp
https://corporatefinanceinstitute.com/resources/foreign-exchange/foreign-exchange/
https://corporatefinanceinstitute.com/resources/foreign-exchange/forex-trading/