Foreign Exchange Account
foreign exchange account
Foreign Exchange Accounting Policy – The Market Characteristic
Foreign Exchange Accounting Policy
The forex markets is the largest and most liquid market in the world. The estimated worldwide turnover of reporting dealers, at around $1 ½ trillion a day, is several times the level of turnover in the U.S. Government securities market, the world’s second largest market.
Almost two-thirds of the total transactions represents transactions amongst the various dealers themselves – with only one-third accounted for by their transactions with financial and non-financial customers. Among the various financial centers around the world, the largest amount of foreign exchange trading takes place in the United Kingdom (1998: 32%), followed by the United States with 18%.
The forex trading market place is a 24 hour market with exchange rates and market conditions changing constantly. However, foreign exchange activity does not flow evenly. Over the course of a day, there is a cycle characterized by periods of very heavy activity and other periods or relatively light activity.
Business is most heavy when 2 or more market places are active at the same time such as Asia and Europe or Europe and America. Give this uneven flow of business around the clock, market participants often will respond less aggressively to an exchange rate development that occurs at a relative inactive time of day, and will wait to see whether the development is confirmed when the major markets open. Nonetheless, the twenty-four hour market does provide a continuous “real-time” market assessment of the currencies’ values. Foreign Exchange Accounting Policy
The market contain a limited number of major dealer institutions that are particularly active in foreign exchange, trading with customers and (more often) with each other. Most, but not all, are commercial banks and investment banks. The institutions are linked each other through telephones, computers and other electronic means. There are estimated 2,000 dealer institutions in the world, making up the global exchange market.
Each nation’s market has its own infrastructure. For foreign exchange market operations as well as for other matters, each country enforces its own laws, banking regulations, accounting rules, and tax codes. They also have different national financial systems and infrastructures through which transactions are executed and within the currencies are held.
When access to all of the foreign exchange markets generally open to participants from all countries, and with its vast amounts of market information transmitted simultaneously and almost instantly to dealers throughout the world, there is an enormous amount of cross-border foreign exchange trading amongst dealers as well as between dealers and their customers. At any moment, the exchange rates of major currencies tend to be virtually identical in all of the financial centers. Rarely are there such substantial price differences among these centers as to provide major opportunities for arbitrage. Foreign Exchange Accounting Policy
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Foreign Exchange (Forex) Market Trading
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