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Discussion Question Student’s name Institution The foreign exchange market is a trading market that involves exchanging of any pair of currency. The participant in the foreign exchange markets buy, exchange, sell and speculate on the currency. The foreign exchange market is composed of commercial companies, central banks, investors, investment management firms, retail forex brokers and hedge funds. Foreign exchange market is the largest financial market globally (Gaspar, Kolari, Hise, Bierman, & Smith, 2016). The operations in this market run for 24 hours around the world and the rates of exchange are guided by inflation rate differential, demand, and supply, the balance of trade/balance of payment and interest rate among many others. There are such factors that enable participants to observe fluctuations in the exchange rate in this market. The transactions of foreign exchange are entered with specific date values. The transactions may be outright transactions sale or purchase either for forward or spot value. Swap transactions are also popular in this market. On the other hand, the Reserve Bank carries out the transaction in the domestic market. Reserve banks do this to ensure that the monetary operational target and the cash rate are close to the target rate set by the board of the reserve bank. The cash rate in this market is the interest rate on unsecured loans between banks. Transactions in this market are undertaken to provide the payment system with liquidity and to manage financial risks. The supply and demand determine the cash rate for the ES (exchange settlement) funds. A number of financial instructions hold the SE funds in accounts in the
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