Nhóm 3:

 Khổng Ngọc Tường An

 Trà Thị Bích Ngọc
 Nguyễn Hồ Huế Trân
 Lê Thị Thủy Tiên
 Lê Cát Tường

Foreign Exchange Trading

What is Foreign Exchange?

Foreign exchange, also known as forex or FX, is exchanging one currency for another. It
involves converting money from one country into another country’s currency for various
purposes, such as international trade, travel, and investments. It is handled globally among
different banks, and all transactions are handled by the Bank for International Settlements
(BIS).

What is the most common Foreign Exchange?

The USD is used in international trade and finance and is the currency of choice for many
central banks. In addition, several other major currencies are commonly traded in the foreign
exchange market:

Euro (EUR)

Japanese yen (JPY)

British pound sterling (GBP)

Swiss franc (CHF)

What is a simple example of Foreign exchange?

Imagine you’re traveling to Europe. You must exchange US dollars for euros for this trip. The
exchange rate will determine how many euros you’ll receive, which you can calculate by
multiplying your dollar amount by the exchange rate. For instance, with an exchange rate of
1 euro = 1.04 US dollars, exchanging 100 US dollars will give you 104 euros.

What are the factors that impact Foreign Exchange rates?

The foreign exchange rates of currencies constantly fluctuate, and several factors can affect
these rates. These factors include:
Economic growth: Strong economic growth leads to currency appreciation due to increased
foreign investment, low unemployment, and high wages, which raise the demand for
imported goods and services.

Inflation: High inflation causes currency depreciation due to value erosion and higher
interest rates.

Interest rates: High interest rates strengthen a country's currency, attracting foreign investors
and increasing demand.

Political stability: Political instability depreciates currencies by causing economic

uncertainty, discouraging investment, and increasing inflation.

Supply and demand: Higher demand than supply leads to currency appreciation.

What is the Foreign Exchange Market?

The Foreign Exchange Market (Forex or FX) is a decentralized global currency-trade

marketplace. It is the world’s largest and most liquid financial market, with a daily trading
volume exceeding $6.6 trillion. It operates 24 hours a day, 5 days a week, following the sun
from one financial center to the next.

Participants in the Forex market include banks, investment firms, hedge funds, retail traders,
and central banks. However, most trading activity is conducted by a few large financial
institutions, known as market makers, who provide liquidity and set the bid-ask prices.

Some key aspects of the foreign exchange market are:

Currency pairs: In forex trading, currencies are traded in pairs, representing the exchange
rate between the base and quote currencies.

Exchange rates: These determine the currency value needed to purchase another currency.
These rates fluctuate due to economic, political, and market factors.

Spot and forward markets: The foreign exchange market comprises spot (immediate
exchange at the current rate) and forward (exchange at a predetermined rate for a future date)
markets.

Trading platforms: Foreign exchange trading is done electronically via platforms provided
by banks, brokers, and online services. These platforms enable traders to access market data,
place orders, and monitor positions.

Risks: Forex trading involves risks such as currency fluctuations and leverage, which can
amplify profits and losses.
Regulation: Global financial authorities regulate the forex market to safeguard integrity and
protect investors. Regulations may include licensing, capital requirements, and risk
management practices.

A. Read the text above and answer the following questions:

1. What is foreign exchange, and what are its purposes?

 Foreign exchange, also known as forex or FX, is exchanging one currency for another.
It is handled globally among different banks, and all transactions are handled by the
Bank for International Settlements (BIS).

 It involves converting money from one country into another country’s currency for
various purposes, such as international trade, travel, and investments.

2. What are some major currencies commonly traded in the foreign exchange
market?

There are some commonly traded currencies such as:

 USD
 Euro (EUR)
 Japanese yen (JPY)
 British pound sterling (GBP)
 Swiss franc (CHF)

3. Why do foreign exchange rates constantly fluctuate?

Foreign exchange rates constantly fluctuates due to the effects of these factors such as

 Economic growth
 Inflation
 Interest rates
 Political stability
 Supply and demand

4. Who are the main participants in the Forex market?

They are banks, investment firms, hedge funds, retail traders, and central banks.

B. Choose the best option.

1. What is the primary purpose of foreign exchange?

a) To create new financial institutions
b) To exchange one currency for another for purposes like trade, travel, and investments
c) To regulate global stock markets
d) To eliminate interest rates globally

2. Which currency is most commonly used in international trade and finance?

a) Euro (EUR)
b) Japanese Yen (JPY)
c) US Dollar (USD)
d) Swiss Franc (CHF)

3. What is an example of foreign exchange?

a) Buying gold on the stock market
b) Exchanging US Dollars for Euros before traveling to Europe
c) Investing in real estate abroad
d) Creating a new central bank

4. What is a key factor that causes currency appreciation?

a) Political instability
b) High inflation
c) Strong economic growth
d) Supply exceeding demand

5. What type of market is the foreign exchange market?

a) A centralized stock market
b) A decentralized global currency-trade marketplace
c) A government-regulated commodity market
d) A market for physical currency exchange only