4 ms·
A foreign exchange is an exchange, ie there are two sides. Each starts with one thing and ends up with another. In your example American Bank A starts with $100
by rr888 4y ago
A foreign exchange is an exchange, ie there are two sides. Each starts with one thing and ends up with another. In your example American Bank A starts with $100 and ends up with £84, British Bank (or an intermediary) has to have someone who wants dollars (or is a Market Maker), that person will give their pounds and end up with the dollars.
Having two parties and two banks makes it a bit complicated. If you think of a guy behind a desk in an airport trading cash - you give him $100 and get £84, the guy behind the desk started with £84 and now has $100. (The next customer might pay £87 to get $100 - the desk makes a small profit and both customers have exchanged what they wanted)
- mikymoothrowa 4y agoWhere is this exchange? Clearly if the price changes can be reported with such high precision, it needs to be based on a solid value from an exchange or a set of real exchanges instead of an aggregate of all the airport guys exchanging cash. (For that matter, even the airport guys don’t set their own prices. They set a commission on top of the day’s forex rate)
- rr888 4y agoThere is no exchange, no central price. If you see a price on TV or somewhere its what a given bank or instution quotes, or maybe a blend of quotes. This is probably true of everything now, if you buy Apple stock you probably aren't trading on Nasdaq you trade on some hedge fund algo, the Nasdaq price is an approximation of what bid/ask you'll trade at.