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FINANCIAL MARKETS AND INSTITUTES 1- Explain importance of foreign exchange market and? Ans .Foreign exchange market is the global market, which is dec ...
FINANCIAL MARKETS AND INSTITUTES 1- Explain importance of foreign exchange market and? Ans .Foreign exchange market is the global market, which is decentralized and not under direct control of the governments, where the currencies are traded. The market is also responsible for determine the foreign exchange rate of the currencies of different countries (King, Osler, & Rime, 2011). Any amount transferred from one country to another, goes through the foreign exchange market, to be converted into another currency. Foreign exchange market is not just aplace for traders and key players of the market to earn money, but italso is the way, acountry invests into another country. Businesses around the world, which are involved in international trade and globalization, are influenced very much by the foreign exchange market. Businesses are able to trade and do business within numerous countries, and still earn in their native currencies, because of the presence of the foreign exchange market. The rate determined by the market decides how much profit and loss abusiness incurs because of the fluctuations in the rate of currencies (King, Osler, & Rime, 2011). The market also is also asource through which, acountry receives foreign currency, and thus affecting the foreign reserves of the government, which are used for multiple purposes by the government. The influx of money in acountry, especially adeveloping one, plays an important role in development of that country. Thus, itcould be said that the functions and importance of the foreign exchange market far exceed the stated function of simply exchange of the currencies. 2- In your opinion what itis the benefit of separation between banking and other financial services such as investment? Ans .Banking refers to the activity of accepting deposits from general public and providing them with loan, at certain percentage of interest rate. It is aplace where a person can store the extra cash they might have at their hands, along with facilitating the transactions abanking customer makes with the help of the bank. Investing, on the other hand, is aprocess or an activity which aperson does, when they have money and want some kind of return or profit on that money, instead of itbeing idle, not providing any kind of return (Bernal, Gnabo & Guilmin, 2014). The difference between the two activities is that, in banking, people deposit money with the intention of safeguarding that money, and get anominal amount of interest on that money, but in investment, the money is invested with the sole intention of earning some kind of return from that activity. The returns vary in both the cases, along with risk factor being high for investing, whereas, risk factor being low for banking. The separation of the two activities and services will ensure that the people are aware about the intentions they have, and what they expect from acertain service (Bernal, Gnabo & Guilmin, 2014). When the two activities are differently offered and explained to aperson, that person will take abetter decision of what needs to be done with the spare money he/she has. Thus, itprovides aclarity and specific purpose to the institutions providing these services. References Bernal, O., Gnabo, J. Y., & Guilmin, G. (2014). Assessing the contribution of banks, insurance and other financial services to systemic risk. Journal of Banking & Finance ,47 ,270-287. King, M. R., Osler, C. L., & Rime, D. (2011). Foreign exchange market structure, players and evolution.
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