ABSTRACT

When we travel abroad to a foreign country, we have to exchange our domestic currency for that of the country we are visiting. For this purpose, we make use of exchange rates. However, exchanging currencies isn’t just for travelers. The price difference is something you can trade. Frequent changes in the value of currencies on account of economic conditions, political news and interest rate changes drive foreign exchange trading and a trader’s profit potential in the currency markets.

Just as any market provides a platform to facilitate exchange of a particular good/service between buyers and sellers, the foreign exchange market is also a medium through which participants can buy, sell, exchange and even speculate on currencies. The present  paper broadly talks about the foreign exchange market, arbitrage strategies in the forex market, different exchange rate systems prevalent throughout the world, factors affecting exchange rate and modes of government/central bank intervention in the forex market.

Keywords:exchange rate, foreign exchange market, arbitrage, intervention