Foreign Exchange Markets
Foreign exchange markets set the value of currencies against one another, influencing the price of products and services worldwide. If one country has a cheaper or undervalued currency, it can produce and sell products to the world at a lower price. Read this section to learn more.
The Extraordinary Size of the Foreign Exchange Markets
The quantities traded in foreign exchange markets are breathtaking. A survey done in April, 2013 by the Bank of International Settlements, an international organization for banks and the financial industry, found that $5.3 trillion per day was traded on foreign exchange markets, which makes the foreign exchange market the largest market in the world economy. In contrast, 2013 U.S. real GDP was $15.8 trillion per year.
Table 1 shows the currencies most commonly traded on foreign exchange markets. The foreign exchange market is dominated by the U.S. dollar, the Euro, the Japanese yen, and the British pound.
Table 1. Currencies Traded Most on Foreign Exchange Markets as of April, 2016
| Currency | % Daily Share |
|---|---|
| U.S. dollar | 87.6% |
| Euro | 31.3% |
| Japanese yen | 21.6% |
| British pound | 12.8% |
| Australian dollar | 6.9% |
| Canadian dollar | 5.1% |
| Swiss franc | 4.8% |
| Chinese yuan | 2.6% |