Foreign exchange market is the backbone of international trade. It provides a platform where different countries can exchange goods and services that help the economies to boost. Foreign exchange market sets different foreign exchange rates where the value of the currency can gain power as well as currencies can devalue. It critically supports imports and exports of the countries. Foreign exchange is also important to get access to the goods and resources outside of the country.
Investment of foreign firms can hugely affect the economy both positively and negatively. Although foreign investment discourages local markets the inflow of foreign capital, especially from those countries whose currencies are strong and powerful, can boost the finance sector of the country.
Foreign exchange markets also play a role of fixing the exchange rates which are used by investors, companies and asset managers. This foreign exchange rate sets the value of assets, goods and services. These markets also allow the governments working under stable conditions to save these foreign currencies as foreign reserves which are used to maintain the stability of the economy.
The situation of the global economy would start to a decline without the Foreign exchange market in the absence of a proper mechanism to determine the exchange rate of currencies. It would eventually result in too large scale manipulation of exchange rates by some countries leading to huge imbalances in the world economy.