Foreign exchange market (forex, or FX, market), institution for the exchange of one countryscurrencywith that of another country. Foreign exchange markets are actually made up of many different markets, because the trade between individual currenciessay, theeuroand the U.S.dollareachconstitutesmarket. The foreign exchange markets are the original and oldestfinancial marketsand remain the basis upon which the rest of the financial structure exists and is traded: foreign exchange markets provide international liquidity, preferably with relative stability.

A foreign exchange market is a 24-hour over-the-counter (OTC) and dealers market, meaning that transactions are completed between two participants viatelecommunicationstechnology. The currency markets are also further divided into spot marketswhich are for two-day settlementsand the forward, swap, interbankfutures, and options markets.LondonNew York, andTokyodominate foreign exchange trading. The currency markets are the largest and most liquid of all the financial markets; the triennial figures from theBank for International Settlements(BIS) put daily global turnover in the foreign exchange markets in trillions of dollars. It is sobering to consider that in the early 21st century an annual world trades foreign exchange is traded in just less than every five days on the currency markets, although the widespread use ofhedgingand exchanges into and out of vehicle currenciesas a more liquid medium of exchangemeans that such measures of financial activity can be exaggerated.

The original demand for foreign exchange arose from merchants requirements for foreign currency to settle trades. However, now, as well as trade andinvestmentrequirements, foreign exchange is also bought and sold for risk management (hedging),arbitrage, and speculative gain. Therefore, financial, rather than trade, flows act as the key determinant of exchange rates; for example,interestrate differentials act as a magnet for yield-driven capital. Thus, the currency markets are often held to be a permanent and ongoing referendum ongovernmentpolicy decisions and the health of the economy; if the markets disapprove, they will vote with their feet and exit a currency. However, debates about the actual versus potential mobility of capital remain contested, as do those about whetherexchange ratemovements can best be characterized as rational, overshooting, or speculatively irrational.

The increasingly asymmetric relationship between the currency markets and national governments represents a classicautonomyproblem. The trilemma ofeconomic policyoptions available to governments are laid out by theMundell-Fleming model. The model shows that governments have to choose two of the following three policy aims: (1) domesticmonetaryautonomy (the ability to control themoney supplyand set interest rates and thus control growth); (2) exchange rate stability (the ability to reduce uncertainty through a fixed, pegged, or managed regime); and (3) capital mobility (allowing investment to move in and out of the country).

Historically, different international monetary systems have emphasized different policy mixes. For instance, theBretton Woods systememphasized the first two at the expense of free capital movement. The collapse of the system destroyed the stability and predictability of the currency markets. The resultant large fluctuations meant a rise in exchange rate risk (as well as in profit opportunities). Governments now face numerous challenges that are often captured under the termglobalizationorcapital mobility: the move to floating exchange rates, the political liberalization of capital controls, and technological and financialinnovation.

In the contemporary international monetary system, floating exchange rates are the norm. However, different governments pursue a variety ofalternativepolicy mixes or attempt to minimize exchange rate fluctuations through different strategies. For example, theUnited Statesdisplayed a preference for ad hoc international coordination, such as the Plaza Agreement in 1985 and the Louvre Accord in 1987, to intervene and manage the price of the dollar.Europeresponded by forging ahead with a regionalmonetary unionbased on the desire to eliminate exchange rate risk, whereas many developing governments with smaller economies chose the route of dollarizationthat is, either fixing to or choosing to have the dollar as their currency.

The international governance regime is a complex and multilayered bricolage of institutions, with private institutions playing an important role; witness the large role for private institutions, such as credit rating agencies, in guiding the markets. Also,banksremain the major players in the market and are supervised by the national monetary authorities. These national monetary authorities follow the international guidelinespromulgatedby theBasel Committee on Banking Supervision, which is part of the BIS. Capital adequacy requirements are to protect principals againstcreditrisk, market risk, and settlement risk. Crucially, the risk management, certainly within the leading international banks, has become to a large extent a matter for internal setting and monitoring.

The series ofcontagiouscurrency crises in the 1990sinMexicoBrazil, East Asia, andArgentinaagain focused policy makers minds on the problems of the international monetary system. Moves,albeitlimited, were made toward a new international financial architecture. Most importantly, these crises led to the establishment of the Financial Stability Forum (since 2009 the Financial Stability Board), which investigated the problems of offshore, capital flows, and hedge funds; and theG20, which attempted to broaden the international regimes membership and thus deepen its legitimacy. In addition, there were calls for a currency transaction tax, named after Nobel LaureateJames Tobins proposal, from manycivil societynongovernmental organizations as well as some governments. The success of international monetary reform is a crucial issue for governments and their autonomy, firms and the stability of their investments, and citizens who ultimately are those who absorb these effects as they are transmitted into everyday life.

, in industrialized nations, portion of the national money supply, consisting of bank notes and government-issued paper money and coins, that does not require endorsement in serving as a medium of exchange; among less developed societies, currency encompasses a wide diversity of items (

, monetary unit and currency of the European Union (EU). It was introduced as a noncash monetary unit in 1999, and currency notes and coins appeared in participating countries on January 1, 2002. After February 28, 2002, the euro became the sole currency of 12 EU member states, and their

, originally, a silver coin that circulated in many European countries; in modern times, the name of the standard monetary unit in the United States, Canada, Australia, New Zealand, and other countries. The Spanish peso, or piece of eight, which circulated in the Spanish and English colonies in America, was

, arena in which prices form to enable the exchange of financial assets to be executed. Given the advent of electronic trading systems, financial markets can now be structured in many ways. Historically, they were physical meeting places in which traders came into face-to-face contact with one another and trading

, science and practice of transmitting information by electromagnetic means. Modern telecommunication centres on the problems involved in transmitting large volumes of information over long distances without damaging loss due to noise and interference. The basic components of a modern digital telecommunications system must be capable of transmitting voice, data,

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