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Foreign Exchange Market

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Running head: FOREIGN EXCHANGE MARKET Foreign Exchange Market Name Institutional affiliation Date 1 FOREIGN EXCHANGE MARKET 2 Discussion The currency exchange market has evolved over the years to become one of the largest capital markets in the entire world as major currencies continue to trade. The currency exchange market started when there was a need to adapt a standardized medium of exchange that would facilitate all the commercial transactions. The first medium of exchange was gold and silver. Then later came paper money where countries could issue paper money backed up with their gold reserves. The first gold standard was adopted in 1816 by Britain (Frankel, Galli & Giovannini, 2009). Because the currency printed by countries could be quantified in terms of gold it meant that the currencies could also be quantified to each other. With the start of the First World War, there was unrest and countries began to drop the gold standard. Because the U.S was the only country that was not physically damaged by the Second World War, it had its dollar pegged against the price of gold (Frankel, Galli & Giovannini, 2009). However, U.S accumulated a lot of trade and budget deficits during the late 1950s and early 1960s (Frankel, Galli & Giovannini, 2009). Due to currency pressures major countries especially the G10 decided to have their currencies would float freely as of March 1973 (Frankel, Galli & Giovannini, 2009). This is what became the beginning of the modern exchange ra ...
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