Foreign Exchange Market Assignment Example | Topics and Well Written Essays - 500 words

Foreign Exchange Market - Assignment Example The parties agree to convert the U.S. currency to the British Pound today (spot transaction date), April 5, 2015 (The Money Converter, 2015). There is a difference between foreign_currency dealers and brokers. The foreign exchange dealer is a person or entity (especially a bank) that buys and sells foreign_currency. People can spot them in supermarkets and grocery stores. The dealer makes a profit by selling the purchased foreign_currency to a buyer of the foreign_currency at a higher price (Shoub, 2013). On the other hand, the foreign exchange broker functions within the currency market. The currency market transactions work just like the stock exchange each foreign_currency broker member of the currency market buy and sell foreign_currency among each other. The broker earns a commission for each foreign_currency transaction. The transaction may be classified as either a buy transaction or a sell transaction. The terms direct quote represents the number of United States dollars needed to acquire one quantity of the foreign_currency (The Money Converter, 2015). For example, a Los Angeles person can convert one United States dollar to British pound at the current foreign_currency conversion rate. The current April 5, 2015 foreign_currency conversion rate is U.S. $ 1 =  £ 0.67. If the same person converts his $100 to British Pound, the person will turn over to the foreign_currency trader U.S. $ 100 and receive in return  £ 67. Further, the term indirect quote represents the number of foreign_currency needed to acquire one United States dollar (The Money Converter, 2015). Using the same conversion rate above, a London based buyer wants to purchase a chosen New York store’s furniture. The furniture store only accepts United States currency. The furniture price is U.S. $ 100. Using the same conversion table above, the London buyer must convert his  £ 67 to the required United States $ 100. After the conversion, the London buyer can pay the New York store