6.3 & 6.4 The Foreign Exchange Market

The foreign exchange market is a global market where currencies are traded. It converts one currency into another, enabling international trade, investment, and tourism. The foreign exchange market is crucial for determining exchange rates, which are influenced by supply and demand for different currencies. The foreign exchange market explains the relationship between the exchange rate and the quantity of a certain currency. Given that exchange rates are always relative, the foreign exchange market consists of two graphs: one for each currency. Keep in mind that the graph for one currency will have the y-axis be from that currency’s perspective (e.g. the market for USD will have an exchange rate of USD/Yen, NOT Yen/USD).