Foreign Exchange Market in Modern Society

April 11, 2013, Tokyo, Japan - Share princes rise to its highest level since July 2008 on the Tokyo Stock Exchange Market on Thursday, April 11, 2013. The Nikkei share average rose above 1.3500 with the bullish mood in place since the central bank announced unprecedented stimulus measures showing few signs of abating.  (Photo by Natsuki Sakai/AFLO)

Keeping up with the intricacies of an economy can be a time-consuming task. Understanding how one economy or currency affects another that it trades with is even more difficult. Now imagine the complexities of every nation’s banks, corporations, and individuals all trading with one another—no safeguards, regulations, or guiding authorities in place. The stakes are high in this fast-paced world, but more and more traders are making use of the foreign exchange market. Inactivity is limited to only a few designated hours on the weekends, but forex is available all hours of the night throughout the week—any moment you can find someone interested in making a deal. Due to the global nature of this market, it’s safe to say that no currency is safe from its pull.

The U.S dollar has certainly earned a certain position of esteem in the global market. Nearly half of all international trade is done through the American dollar, and the top seven most commonly made exchanges on the FX are to or from USD. Ever since the end of World War II, when the Bretton Woods Agreement had every victorious country tie their currency to the dollar, it’s been held in high regard on an international level. Even after that agreement was abolished in the 1970s, the USD is still the only currency in which oil is allowed to be bought and paid for between foreign entities.

The main impact that the Foreign Exchange market has had on the dollar is that it has made it more difficult to predict. Taking up such a huge part (up to 87%) of such a huge market that trades as quickly as it does, there’s no telling which direction the currency may head or for how long it’ll ever remain in one trajectory. Thanks to the sophistication of the FX market, the global economy has become increasingly more difficult to manipulate. In 2015, however, we did see a coalition of J.P. Morgan, Barclays, Citigroup, and the Royal Bank of Scotland attempt to rig foreign exchange rates. If traders are able manipulate sales to, say, strengthen the American dollar to make U.S. exports less competitive, oil-producing countries could raise the price of oil (which is sold only in dollars) to remedy that.

The Canadian dollar is another sort of unique currency. Though it isn’t a reserve currency, that may not be true for long. Its use as a reserve currency is becoming more and more common. The CAD is also very intricately tied to the health of the U.S. economy, which is why watching their exchange rate is so important. Canada is not an especially large country or exporter; it is a stable economy that has found a happy medium between profiting off its abundant natural resources and becoming too reliant upon them. Most importantly, though, Canada is becoming an increasingly appealing choice for traders as the US dollar continues to act so erratically thanks to its place in the world market. If the CAD continues to stay reliable, its performance on the foreign exchange market will only increase, and perhaps eventually be given the same international status as the USD.

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