Currency exchange is vital to the functioning of the global
economy. Goods that are produced in one country and sold in another necessitate
currency conversion. Consider, by way of example, that the popular iPhone is
assembled using components from at least five countries and is exported to no
fewer than 87 countries.
1 Given that Apple accounts for its earnings and pays
dividends in US dollars, payments to suppliers and the repatriation of profits will
require nearly a hundred separate foreign exchange transactions for only this one
product! When you apply this notion to the whole of the global economy, you
begin to understand the scope of currency exchange.
In fact, average daily turnover in the forex markets now exceeds $4 trillion. Spot
trading in the USD/EUR alone represents $400 billion—enough to earn it the
designated status of most traded financial asset in the world. By comparison, the
NYSE and Nasdaq combined account for perhaps $150 billion in daily equities
volume. Global foreign exchange volume has doubled over the last six years,
while equities volume has stagnated. Of course, this isn’t an apples-to-apples
comparison, but the point stands that the forex market is truly massive.
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