Importance of Regulating the Foreign Exchange Market
The foreign exchange market, also known as forex industry is with out a doubt the biggest financial market inside the world. As far as the triennial survey conducted by the Bank for International Settlement is concerned, the global forex turnover for last year averaged a staggering $5.0 trillion on daily basis, that is an increase of 20% from its value of 3 years earlier. The significance of the foreign exchange market cannot be ruled out for the average consumer in these circumstances. Apart from that, the rate at which the domestic currency can be exchanged inside the global forex business type of determines the price a consumer pays for the increasing number of products, the price tag for our own vacations, the rate of return on the investments we make as well as the interest rate that we incur on loans and deposits.

Hence, currency gyrations within the forex industry can dictate the fortunes of everyone, will not matter if he is the richest person within the world, a Well-known person or the smallest consumer. Despite of this, foreign exchange market is still mostly unregulated. many consider that foreign exchange markets are unique domain of the biggest corporations and banks, however, the recent trends have dispelled this particular notion. Thereby, the importance of Getting this huge market under the ambit of regulation has increased.

The transactions made within the forex industry can be classified into two different types: speculative transaction and commercial transaction. Definition wise, a commercial transaction is the one that's backed by an underlying economic activity. For example, the loan to an overseas entity or payment for an import can be considered financial activities for commercial transactions. On the other hand, a speculative transaction is the one which is undertaken just for Producing profit from the currency movements.

The number of speculative transactions exceeds the number of commercial transactions in a huge way when it comes to the foreign exchange market and over the last few years, this type of transactions have accounted a much better share of the forex trading volumes. If the figures from the 1970s are considered, the volume of currency trading was only around 6 times of the global trade of services and goods. However, by the 1990s, the day-to-day forex trading volume was nearly 50 times of this value and speculative transactions played a main role in Creating this happen.

As most of the speculative transactions are handled by rather smaller monetary groups, the importance of regulating foreign exchange market has increased manifold as well.