Saturday, September 5, 2009

The forward market for currencies(2)

The need for hedging against the risk of fluctuating currency-exchange rates was recognized as early as the 14th century, when forward-market trading first appeared. However, the market developed slowly due to numerous political upheavals, war, and a poorly developed communications network. Following a burst of forward-exchange trading during the 1920s, the forward market almost disappeared during the depression years and World War II. It revived during the 1950s, however, and grew dramatically during the 1970s as currency prices became extremely volatile. Thousands of corporations, foreign governments, and central banks have entered the market during the past decade, responding to problems created by the wide ranges over which national currencies float today.

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