The forex market has a very important role to play in the current situation of economies all around the world. It allows countries to sell and buy currencies through trade with certain exchange rates set by the market. Forex market also determines the value of currency either it is depreciating or appreciating in comparison to other currencies. These fluctuations are very important for the economy of a country as the forex market helps economies to grow as well as countries with weak currencies are seen to experience slow economic growth.
The reason behind the importance of the foreign exchange market for the economy is that it impacts the economic factors like trade, foreign reserves, interest rates, the value of a currency, etc in very crucial ways. For example, forex market deals with the number of imports and exports of a country with other countries which is no doubt very important for the economy. Currency depreciation and appreciation are among the major determinants of economic growth. Not only this, even domestic affairs like inflation rates also fluctuate due to the changes in the forex market. The changes to the value of a currency in the forex market reacts to trade balance, inflation rates and interest rates in the economy.