Some people may think of the perfect bazaar market as one in which wonderful goods are available at bargain prices. This would not be an economist's idea of a perfection. Instead, he would think of the Forex market as the ideal because the laws of supply and demand play themselves out perfectly.
According to economic theory an ideal market is not one in which bargains can be obtained, but one in which the laws of supply and demand operate perfectly so that prices are completely fair. This is because they are arrived at as a result of completely fair competition. Buyers and sellers are so well balanced that prices remain stable, though they may oscillate around pivot points, driven by some variables.
The huge volume of the foreign exchange market helps to keep in equilibrium. It is estimated that the turnover exceeds three trillion dollars in a single day. With such huge volumes it is not likely that a single trader can easily swing prices his way.
The central banks of different countries do have the power to determine price movements and this may be where markets are less than perfect. Though central bankers try not to destabilize prices they can hardly open their mouths without have some effect. Observers scrutinize every word and a phrase such as 'continued vigilance' can have a startling effect when uttered by a central banker.
The importance of currency values in determining a country's economic health can hardly be underestimated. The weak Chinese currency puts it a considerable advantage when it comes to exports, and conversely the strong American dollar puts it at a disadvantage.
One objection is that the Chinese communist authorities are not altogether convinced about free markets, and so intervene to keep their currency conveniently weak. However, it could be argued that the American central bank can also manipulate the market by raising or lowering interest rates. So it may be a case of the pot calling the kettle black.
The Forex market is so dispersed across the planet that it is almost perfectly liquid. A buyer can always find a seller within seconds, and the same goes for a seller. Moreover, trading need not be confined to major currencies such as the Euro and the American dollar. It is easy to trade other currency pairs online, such as the Australian and New Zealand dollars. Since trading carries on for twenty four hours every day right across the world currency pairs are continually in motion, oscillating around values which are, theoretically, determined by the laws of supply and demand.
According to economic theory an ideal market is not one in which bargains can be obtained, but one in which the laws of supply and demand operate perfectly so that prices are completely fair. This is because they are arrived at as a result of completely fair competition. Buyers and sellers are so well balanced that prices remain stable, though they may oscillate around pivot points, driven by some variables.
The huge volume of the foreign exchange market helps to keep in equilibrium. It is estimated that the turnover exceeds three trillion dollars in a single day. With such huge volumes it is not likely that a single trader can easily swing prices his way.
The central banks of different countries do have the power to determine price movements and this may be where markets are less than perfect. Though central bankers try not to destabilize prices they can hardly open their mouths without have some effect. Observers scrutinize every word and a phrase such as 'continued vigilance' can have a startling effect when uttered by a central banker.
The importance of currency values in determining a country's economic health can hardly be underestimated. The weak Chinese currency puts it a considerable advantage when it comes to exports, and conversely the strong American dollar puts it at a disadvantage.
One objection is that the Chinese communist authorities are not altogether convinced about free markets, and so intervene to keep their currency conveniently weak. However, it could be argued that the American central bank can also manipulate the market by raising or lowering interest rates. So it may be a case of the pot calling the kettle black.
The Forex market is so dispersed across the planet that it is almost perfectly liquid. A buyer can always find a seller within seconds, and the same goes for a seller. Moreover, trading need not be confined to major currencies such as the Euro and the American dollar. It is easy to trade other currency pairs online, such as the Australian and New Zealand dollars. Since trading carries on for twenty four hours every day right across the world currency pairs are continually in motion, oscillating around values which are, theoretically, determined by the laws of supply and demand.
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