Because each nation issues its own currency, each currency is worth something different in relation to every other currency in the world. Nations which have strong economies generally have strong currencies, which is why today's currency markets are dominated by the yen, the American dollar and the mark. At some point in history, enterprising traders devised ways to trade not in goods or services from one country to another, but in the currency of various countries. Derided as gamblers by some analysts and considered reckless interlopers by others, these speculators estimate whether one currency will rise or fall in relation to another, and buy, or sell, accordingly. With the advances in technology that have occurred in the last half of this century, it is no longer necessary that traders wait for markets to open in different time zones; programmed trading can take place from one computer to another. This research examines the foreign exchange market, including the mechanics of the market, influences on rates, influences of speculators on the market, and considers what may be in store for currency traders in the future.
The current era of currency trading began essentially at the end of World War II with a conference held in Bretton Woods, New Hampshire in 1944. The goal of the meeting was to determine how the international monetary system should operate following the war, and representatives of the allies were present, although the United States and the United Kingdom dominated the discussions.
Those present at Bretton Woods agreed that stable exchange rates were desirable, but that there should be flexibility in order to permit adjustments since floating or fluctuating exchange rates had previously been unsatisfactory. The conferees also agreed that the government controls of trade, exchange, production and other factors which had developed during the Depression were discriminatory and inefficient, and harmful to the ex...