Forex Markets and Interbank Markets

Forex is the market place where currencies are traded. It is the most liquid and largest
market in the world, moving over $1.9 trillion a day worth of trades. This market is open
24 hours a day, 5 days a week. Through the Internet, any investor can buy and sell
currencies in their brokerage accounts. Moreover, the interbank market is the financial
system in which banks and financial institutions buy and sell currencies; the interbank
market manages around a 50% of the forex market.23 Banks are capable of changing prices
in the markets by making large investments from their own accounts when times of low
volume in the market

The History of the Forex Market

Since early times in history, mankind has developed different methods to trade goods for
other valuables. During the European medieval times, a coinage system was developed
where coins were made out of different metals and were exchanged depending on their
value. On the other hand, paper money was developed in China during the Tang Dynasty
(Sixth Century A.D.) These events marked the beginning of the actual currency model, the
banknote system, which consists of coins and paper money to represent different values
and accumulation of wealth.

The Gold Standard

The Gold Standard was a monetary system that changed the concept of money; each
country that implemented the system established an exchange rate between their currency
and a certain amount of gold. The purpose of this was for currencies to be backed up by
gold.This system made commerce between nations more transparent. The Gold Standard
worked from 1871 until 1914 when World War I began; eventually the system broke down
because the amount of gold reserves each country needed to back up their currencies were
extravagant. Germany was forced to drop the Gold Standard to proceed with their military
operations. During the War, the expenses were too large to be backed up by the gold
reserves possessed each country had. After the war, many countries abandoned the Gold
Standard. Franklin D Roosevelt banned the private ownership of gold in 1933.

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