1- What are the functions of the foreign exchange market? Would international co

Question

1- What are the functions of the foreign exchange market? Would international commerce be possible without its existence?

2.   Describe the concept of regional economic integration. Do you believe that regional economic integration is a good thing? Explain your answer.

3. What is the difference between a free floating exchange rate and a managed or dirty float system?

4.    What is meant by the term Foreign Direct Investment? Describe the difference between the flow of foreign direct investment and the stock of foreign direct investment.

5. Please briefly explain the following forms of economic integration: free trade area, customs union, common market, economic union, and full political union. Provide an example of each form of economic integration.

Explanation / Answer

Answering the first question as per Chegg policy

Foreign Exchange Market is the place where the money from foreign investors is bought and sold. The importers buy foreign currency while exporters sell it. The functions of the FEM are:

1. Transfer function: The transfer of finances and purchases from one country/ nation to other. The process converts one currency into another. This s done with the help of bank drafts, telegraphic transfer, and foreign bills.

2. Credit Function: It also provides both national and international credit and promotes foreign trade. A normal tenure of credit is generally 3 months.

3. Hedging Function: It also helps in hedging against foreign exchange risk. A change in foreign currency (in relative terms) may prove to be profitable or loss to another party, in a free exchange market. The FEM provides for the anticipated losses or fluctuation in the currency.

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