WEBLOG NOTE FOREX

Foreign Exchange as a Financial Market

Currency exchange is very attractive for both the corporate and individual traders who make money on the Forex -
a special financial market assigned for the foreign exchange. The following features make this market different in compare to all other sectors of the world financial system:
• heightened sensibility to a large and continuously changing number of factors;
• accessibility to all traders in the major currencies;
• guaranteed quantity and liquidity of the major currencies;
• increased consideration for several currencies,
round-the clock
business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open and
• extremely high efficiency relative to other financial markets.
This goal of this manual is to introduce beginning traders to all the essential aspects of foreign exchange in a practical manner and to be a source of best answers on the typical questions as why are currencies being traded, who are the traders,
what currencies do they trade, what makes rates move,
what instruments are used for the trade,
how a currency behavior can be forecasted and
where the pertinent information may be obtained from. Mastering the content of an appropriate section the user will be able to make his/her own decisions, test them,
and ultimately use recommended tools and approaches for his/her own benefit.

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The PPP Relative Version

Under the relative version, the percentage change in the exchange rate
from a given base period must equal the difference between the percentage
change in the domestic price level and the percentage change in the foreign
price level.

The relative version of the PPP is also not free of problems:

it is difficult or arbitrary to define the base period, trade restrictions remain a real
and thorny issue, just as with the absolute version, different price index
weighting and the inclusion of different products in the indexes make the
comparison difficult and in the long term, countries' internal price ratios may
change, causing the exchange rate to move away from the relative PPP.

In conclusion,
the spot exchange rate moves independently of relative domestic and foreign prices.

In the short run,
the exchange rate is influenced by financial and not by commodity market conditions.