Someone asked a very good question yesterday about Forex.
Hi all, this is unrelated question about trading. i wanted to know why the world need foreign exchange market? i know basically if japan sells his car to USA, then there is need for an exchange. but i hope someone can give a detailed explaination why the world need the forex market?please advice.When you buy a car from Japan you need to make an exchange. That's all the explanation, really.But the story is a little longer. Let me get into it a bit more. You need to know why we need money.Well, we need money to measure value of things. Let's say you are a farmer making vegetables and I am a craftsman making tools. I need to eat tomatoes from your farm to live. You need some tools from me to cultivate your tomatoes and make a living. But to exchange one tomato for one tool wouldn't be fair. We have different costs of making these goods. So this is how money appear. Instead of exchanging the products themselves, we exchange products for money, so that each product's value is measured and converting the products you make into products you need is much easier.Now why do we need foreign exchange market (or currency market)?It's simple. The cost of a product can differ from country to country. In Ecuador bananas probably are very cheap, because anybody can grow them. In Sweden on the other part, where bananas aren't growing, they are more expensive. So when buying bananas, one currency unit in Sweden will have a different value than in Ecuador. But bananas aren't the only good available. We sell cars nowadays, machines, clothes or services. These things need to get balanced. Some make more than they use, so they export, others make less, so they import. Some have natural resources, some don't.We not only need to know the value of different products in a specific place, but the value of products in different places around the world.The forex signals currency market measures the value of a currency by comparing it to an other one - this being the currency pair you're forex trading every day, EUR/USD for example.Now, the currency itself measures the value of different products.What do you get from these two statements? The FOREX market measures the value of products
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