Analysis of FOREX Market Trends and Their Effect on International Trade
Introduction
Background to the study
The “foreign exchange market” refers to the required institution that can help a country exchange its currency with another country's currency. The foreign exchange market is actually made up of several other countries' markets as the trade can be conducted between the individual constituent and other countries' currency value. As per the reference of Aslam et al. (2020), the “foreign exchange market” is “original and one of oldest” financial markets that remain the required basis on which the remaining “financial structure exists” and is traded. The effectiveness of the “foreign exchange market” is effectively accumulated based on its effective stability and provides adequate international liquidity as well. In the opinion of Ngwakwe (2020), the “foreign exchange market” has provided services based on “24-hour over-the-counter (OTC)” and the transactions related to the exchange are done with the use of effective “telecommunications technology” as it can deal or communicate with the participant by using “telecommunications technology”.
On the other hand, the effect of the “Foreign exchange market” on the global economy has also been discussed and analyzed with the proper valuation of data and information. Fluctuation in the exchange rate has a critical effect on the global economy. The changes in the exchange can critically change the actual value of required imported goods price. It has mainly affected domestic products that fully rely on the effective imported parts and other raw materials. Based on research work Papadamou et al. (2020), the Exchange rate can also influence “investment performance, interest rates, and inflation”. On the other hand, the changes in the “Foreign exchange market” have also extended by influencing the required job market and other “real estate sectors” as well.
Statement of the problem
“Changes in the value interest rates” and inflation are the required issues which can affect the economy globally but require “changes in the exchange rate” in the currency. As per the research work of Dao et al. (2019), the valuation of major “changes in the exchange rate” has accumulated with the effective changes in the “foreign exchange market”. The required problem has been analyzed in this area whether the global economic position has been affected by ineffectiveness in the work or position of the “foreign exchange market”. On another hand, it can also state that the changes in the “foreign exchange market” have implied three different types of problems: “transaction risk, economic risk, and translation risk”. The effective valuation of these risks has been critically implicated as the valuation of transactional risk is analyzed especially for “exporters/importers and businesses” who traded in the required international market. Based on the research work of Yang et al. (2019), the required influence in the effective "foreign exchange market" has been critically hampered by the adequate valuation of each range of exchange value. Macroeconomic statistics is another required aspect which has been affected by the required changes in the "foreign exchange market" and creates a required reflection on the adequate negative effect. The increase in the interest rate and changes in the inflation rate are the two required examples of Macroeconomic statistics.
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As per the view of Jayashree and Priya (2019), the purchase and required sale of foreign currency is the required importance of the “foreign exchange market”. The effective valuation of another major aspect that can help in analyzing the required importance of using the "foreign exchange market" is needed to be analyzed as this will help in conducting this research more broadly. The valuation of all related aspects which is stuck with the "foreign exchange market" has needed to analyze and effectively conduct the research with the effective use of those analyzed data and information in an appropriate way. the value of required effectiveness is conducted with the use of the required research question as:
Q1: What is the major significance of the foreign exchange market?
Research Question: 2
Based on the research work of Munkhdalai et al. (2019), the valuation of the required aspect related to the "foreign exchange market" can effectively need to be analyzed but its integration with the other aspect is also needed to accumulate as this aspect will help in providing effective outcome with the research. The valuation of all related aspects in the "foreign exchange market" will create an effect on understanding its impact on the global economy as well. It is required to analyze all related aspects which make reflection on analyzing each type of impact on the global economy. the valuation of those data and information will be possible with the sue of the required research question as:
Q2: What is the required impact of the “foreign exchange market” on the global economy by using adequate data and information?
Research Question: 3
The accumulation of the "foreign exchange market" contributions in the market can be another required aspect which helps in conduct ensure to research more effectively and appropriately. Based on the view of Khushnud et al.(2020), the analyzed data and information related to the "foreign exchange market" contribution will help in reflecting another side of the "foreign exchange market" as it will make this research effective and distinct from the previous research as well. it is required to include an effective research question which will shed light on the positive view of the "foreign exchange market".
Q3: What is the major contribution to the “foreign exchange market” in the global economy?
Justification of the study
Aim
The main aim of this research study is to analyze required trends in the “Foreign exchange market” with an adequate valuation of its impact on the global economy as well.
Objectives
To evaluate the significance of the “foreign exchange market”
To assess the required impact of the “foreign exchange market” on the global economy by using adequate data and information
To provide a major contribution to the “foreign exchange market” in the global economy
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The section includes an in-depth theoretical discussion related to the impact of the topic. It covers all the aspects that are present in the research objectives and stated by the peer-reviewed authors. The focus of the trends in the “FOREX” and its accumulated impact on the global economy has been analyzed in the section. The significance of the research topic and the argumentative debate among the researchers will be presented in the section. An effective comparison of the historical information and the current information available related to the research topic will be done. The section has appropriately described the various theories that are related to the “foreign exchange market” and its significance.
Evaluation of the significance of the “foreign exchange market”
The “foreign exchange market” probably assists international trade and investments, fueling the currency conversion easily. Based on the research work of Song and Zhou (2020), the main objective of the “foreign exchange market” is to engage in buying and selling of currencies. It helps in money making with the help of selling one currency in exchange for another. Apart from that, one of the crucial functions of the “foreign exchange market” is to introduce effectiveness and transparency for the buyers and sellers engaged in the transaction of foreign currencies. On the other hand, as opined by Verma and Gustafsson (2020), the “Foreign exchange market” helps in the regulation and facilitation of external trade and payments with the help of abiding by the proper procedures, regulators, and transactions of all foreign exchange items. It is regarded to be a crucial element of foreign investment and it is the market regarding the view of managing international trade risk, arbitrage, and speculative gain. It creates a major source of exchange rates that is included from the importers' and exporters' sides. However, changes in the interest rates and exchange rates can create major implications for trading. The market constitutes the purchase and exchange of the goods and services across various nations with changes in their rates.
Figure 1: Significance of the Foreign exchange
Assessment of the required impact of the “foreign exchange market” on the global economy by using adequate data and information
The changes in the exchange rate are largely responsible for affecting the real economy rates and most importantly affecting the changes in the demand and supply. Based on the views of Abu-Rayash and Dincer (2020), in the market of goods the positive change to the exchange rate of the domestic currency tends to make the exports expensive and the imports cheaper. On the other hand, the accumulated impact of foreign exchange investments can be witnessed with the increasing volatility in the income statement. In case, the transactions are left unhedged this will create an equal impact on the profitability venture of the Company. However, the translation exposure that arises as one of the vital effects of the foreign exchange currency can disrupt the financial statements of the Company on a higher note. For example, the trading of the Indian rupee Rs 72.96 in exchange for one dollar, then the FOREX rate for the US dollar will be equal to the amount of the Indian currency that has been transacted. Based on the research work of Norouzi et al. (2019), many factors have a higher tendency to affect the foreign transaction scenario, inflation rate, exchange rate, interest rates, deficits, debt, and import and export of goods and services.
Figure 2: Characteristics of the “Foreign Exchange market”
Evaluation of the major contributors to the “foreign exchange market” in the global economy
The major players that have actively participated in the “foreign exchange market” across the global economy are “Commercial banks, hedge funds, retail traders, retail brokers, primary brokers, “Foreign exchange fixing”, “Governments and central banks” and many more. As per the reference of Wang and Zhang (2021), the FOREX market is decentralized and it is not overpowered by any regulatory control or any particular organization. Moreover, commercial banks act as market makers. On the other hand, the central banks have the supreme authority to make changes and certain reforms in the market. As opined by Abu-Rayash and Dincer (2020), the functioning of the major contributors in the FOREX market is indulged in the secure and safe transaction of money from one economy to providing credit facilitation effectively. On the other hand, the globalization and operations of FOREX across the world and foreign markets have offered great liberty to traders. It has also affected the leveraging capacity of the “foreign exchange market” by making large trade volumes, geographical dispersion, and uninterrupted operations. The explanation of the theory will be justified in the aggregate assumptions of the law of one price.
Figure 3: Major Players of the “foreign exchange market”
Theoretical framework
Purchasing-power-parity theory
The “purchasing-power-parity theory” is a suggestive idea that includes the transfer of goods in one economy costing equal to the currency power of another country. Based on the research work of Afonasova et al. (2019), the theory exhibits the exchange rates that occur between two currencies and their equilibrium. It additionally allows explaining the purchasing power of the two economies is in an equal state. The key assumption of the theory is that the rate of the exchange value of one country is equally proportional to that of another country. The theory takes into the assumption of the exchange rate cysts that occur within the geographical boundaries of two different countries. Apart from that, PPP suggests that the transactions occurring within the current account probably affect the exchange rate value on the FOREX market of another country. The basic grounds of the theory are based on the extension and differentiation of the “law of one price” that applies to the diversified economy. The theory explains the major variable that is required for foreign exchange trade and investment.
Research Methodology
Research Paradigm
Research Paradigm is also known as research philosophy that states the effective valuation of efficient processes that help in "gathering, analyzing and utilizing" all the collected data and information in an appropriate way. The use of the research philosophy will help in appropriately conducting this research (Penkova et al. 2020). It will help in formulating the required "assumption and belief" for effectively analyzing rich essentials for the research. The consideration of the required facts and related truth will be effectively analyzed with the use of appropriate research philosophy. Research philosophy is mainly of three types "post-positivism, Interpretivism and realism".
The researcher will need to select "Interpretivism philosophy" and conduct this research to collect data and information appropriately. The effective interpretation of the collected data and information is derived and will help in providing accurate outcomes as well. The use of the "Interpretivism philosophy" will help in collecting relatable data and information regarding the major trend in the "foreign exchange market" and its effective impact on the global economy.
Research Design
As per the view of Iyke (2019), the research design is an effective research strategy that will be used by the researcher in the way to consider all related research studies and synchronize all the available components logically. The use of research design will help in deriving effective strategies and conducting research with the valuation of relatable data. The research design has three types: "Exploratory design, Explanatory design and Descriptive design". The researcher will need to select an Explanatory design for this research and make implications on effectively explaining all the collected data and information based on the required strategy. The use of explanatory research design will help in segregating ineffectively and help in reducing as an effective and profound conclusion in the research. The use of the explanatory research design will implicate in analyzing relatable information regarding the proper trends in the “foreign exchange market” with the collection of related data.
Target population, Sample Techniques and Size
The selection of the secondary data collection method will make implications on selecting the target audience. The collection of data and information will be effectively analyzed by collecting information from the businesses and companies who generally run their business from the international market. The collection of these aspects will help in collecting information and help in drawing an effective conclusion. On the other hand, it will use "Purposeful sampling” which will provide an equal chance to each event aspect before conducting a conclusion. Ligita et al. (2020) oversight that Theoretical sampling is a well-known method in grounded theory studies to seek additional data based on concepts developed from initial data analysis." The population size is determined on the numbers of articles published related to foreign exchange market in the global economy. The population size will be 7 articles which will be used for thematic analysis. The use of this random technique can make an implication on the drawn effect conclusion.
Data collection
The methodology incorporated for the collection of data vital for the completion of this research study will be generated from secondary sources. The derivation of secondary data would be analyzed using “qualitative data analysis” methods. "Mezmir (2020) has proposed that Qualitative data analysis is the classification and interpretation of linguistic (or visual) material to make statements about implicit and explicit dimensions and structures of meaning-making in the material and what is represented in it". The collection of reliable data from secondary sources can be optimized as the researchers choose to derive data based on previous analyses and research conducted by renowned scholars and professionals. Data collected from secondary resources will involve retrieving data findings from relevant and reliable secondary sources like academic journals, authentic books and scholarly articles for generating and maintaining significance in this study.
Data analysis
Data analysis is one of the effective processes that are used by the researcher to properly observe and interpret the relevancy of collected data with the research topic. “The valuation of the adequate phenomena based on basic observation can help in drawing adequate conclusions and it can be possible by using the effective data analysis process (Chen et al. 2020)”. "Data analysis and reporting do not tell investigators how to design and perform their experiments and their overall focus is on greater granularity in the description of what has been done and found" (Michel et al. 2020). Thematic analysis is used and prepared with the use of the relevant articles and helps in proceeding with the research to provide effective outcomes. The use of effective data research with thematic analysis has implied and enhanced adequate accuracy and ability to proceed with a large amount of data and information after the completion of the research.
Ethical Consideration
The research has been conducted with the proper valuation and implication of an effective ethical code and it is required for the researcher to maintain an ethical code effectively. The required included ideas and other knowledge collected at the time of conducting research are not used at the time of any commercial work. It is required for researcher to maintain effective privacy after using the articles for preparing themes for the research. On the other hand, it is needed to take adequate permission from the owner of the articles if the articles contain the required privacy aspects.
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