the foreign exchange rate and the market for foreign exchange

the foreign exchange rate is simply the price of one currency in terms of another .this price can be viewed as the result of the transaction of the force of supply and demand for the foreign currency in any particular period of time .Although this price is fixed under some monetary system arrangements,if a country is to avoid continual BOP surpluses or deficits ,the fixed exchange rate must be approximately that which would result from market determination of the exchange rate ,we will therefore proceed to examine the foreign exchange rate assuming that it is the result of the normal market interaction of supply and demand. this market simultaneously determines hundred of different exchange rates daily and facilitates the hundreds of thousands of international transactions that take place . the worldwide network of markets and institutions that handle the exchange of foreign currencies is known as the foreign exchange market . within the foreign exchange market , current transaction for immediate delivery are carried out in the spot market and contracts to buy or sell currencies for future delivery are carried out in forward and future markets .the nature of these specific markets and the manner in which they function will be discussed in greater detail later in the next posts