Case Scenario:
The market for foreign exchange can be viewed as a two-tier market. One tier is the wholesale or interbank market and the other tier is the retail or client market. International banks provide the core of the FX market. They stand willing to buy or sell foreign currency for their own account. These international banks serve their retail clients, corporations or individuals, in conducting foreign commerce or making international investment in financial assets that requires foreign exchange. Please discuss the following questions:
Q1. Give a full definition of the market for foreign exchange.
Q2. What is the difference between the retail or client market and the wholesale or interbank market for foreign exchange?
Q3. Who are the market participants in the foreign exchange market?
Q4. How are foreign exchange transactions between international banks settled?