1. Concepts of the Foreign Exchange Market
The Functions of the Foreign Exchange Market The foreign exchange market serves two main functions. ... The second is to provide some insurance against foreign exchange risk, by which we mean the adverse consequences of unpredictable changes in exchange rates. ... INSURING AGAINST FOREIGN EXCHANGE RISK A second function of the foreign exchange market is to provide insurance against foreign exchange risk, which is the possibility that unpredicted changes in future exchange rates will have adverse consequences for the firm. ... The spot exchange rate is the rate at which a foreign exchange de...
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