• Banks and countries: They need to watch their currency value and keep it as the rate so their economy has space to growth and the country’s product is cheap enough in the global market. For example, if you stay in Thailand, it costs you 100 baht to make growth with an apple. So you want to sell it to the USA; if Thailand currency is cheap, your apple will easily be accepted by USA customers compared to, let’s say, Singapore because the Singapore dollar is more “expensive” than baht.
• Large funds and companies: They need to hedge their contract. For example, you are a Singapore company director and you have signed a contract 10M US Dollar to sell 100 microchips to the USA. Now the contract is signed in January but until June you can deliver the 100 microchips. During the 5 months of Jan to June, you are exposing to the exchange rate of USD/Sing dollar. If the exchange rate in the Jan example was 1 used = 1 sing dollar and at June 1 used = 0.9 sing dollar only, then in June you received 10 M USD but actually on 9 M sing dollar (you lost 1M sing dollar). To avoid this happening, you go to the Forex market and hedge your contract with buying 10M sing dollar so, if the above happens, you will then have profit in this trade to balance your loss of 1M Singapore dollar.
• Trader: In it to trade and make money from the moving of the market.
Regards,
Will Vu - Forex Investors since 2006
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