THE USES OF THE FOREIGN-EXCHANGE MARKET

THE USES OF THE FOREIGN-EXCHANGE MARKET

 So far, we have defined the key terms and concepts involved in foreign exchange. Now we will discuss the four major uses of foreign exchange: commercial transactions: making the market, arbitrage, and risk bearing or riskreduction.12

The major facilitators of these transactions, as mentioned earlier in the

volves the bank in serving as a vehicle for making payments between its own resident customers and foreign nationals.
The purchase and sale of foreign exchange are undertaken by a commercial bank for many purposes. For instance, travelers going abroad or returning from a foreign country will want to purchase or sell foreign currency. Residents of one country wishing to invest abroad also would need to purchase foreign currency from a commercial bank.
Suppose that a Canadian exporter is to receive payment from a U.S. importer in U.S. dollars, and the exporter wishes to use the funds to make payment for raw materials purchased in Norway. The bank in this case simultaneously serves as a collector and acts as a dealer in a foreign exchange.

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