B. Intermarket Overview

I. Terms Of Service

II. FOREX Market

With the unprecedented technological advancement and global political pressures in the second half of the 20th century came a change into how people invested their money. Where before the global capital system was a domain of government, running mainly on transfer payments, private institutions and individuals have slowly increased their participation in this market as globalization and trade become the rallying points in global development.

The Global Capital System

Initially the Global Capital System was an extension of the US financial framework, this mainly owing to its dominance of the world economy right after World War II. Capital flows came in the form of credits and grants under the Marshall Plan to rebuild the economies of Western Europe. Yet political pressures, economic development and regulatory practices of the period eventually lead to the development of the private sector giants, businesses and individuals that have slowly displaced the lead role of governments in the international financial markets.

The main difference between the international financial markets and a closed economy is the introduction of currency as an asset class by itself. Where in the latter your average portfolio manager has a choice between bonds, commodities, and equities as an investment venue now currencies of themselves do not merely facilitate a transaction but become a speculative instrument where profit is made from the fluctuation of exchange rates.

Figure 1. International Financial Market

forex cycle

 

Equities. Equities or Stock Markets are the most widely followed financial markets. Essentially they exists as an intermediary for raising capital with investors buying shares of stock of a company in anticipation of a stocks price appreciation or dividends in the form of stock or cash. Today equity transactions are becoming transborder in nature accounting for a significant portion in international fund flows and consequently movement in currency prices.

Bond Markets. The bond market is a venue for inexpensive borrowing by corporations and governments promising periodic payments over a specified time frame. Next to cash they are considered among the most liquid instruments given the high degree of convertibility and minimum risk. It is where interest rates are generally determined by open market forces.

Commodities. In the context of the International Financial System, commodity here mostly refers to precious metals such as gold, which serves as a primary course of refuge in times of instability and inflation. Spot Gold is typically traded in open market prices among the principal bullion markets London, New York, Hong Kong and Singapore though futures contracts of such have been developed among other commodity exchanges.

Currencies. Among these asset classes currencies stand out as they do not merely serve as a store of value but facilitate transactions in the other classes when there is a flow of fund from one economy to another. This in effect makes the currency markets the biggest of the classes as global integration and investment diversification proceed requiring the need of changing one currency for another.

In its entirety the International Financial system revolves around the interlinkages between the different asset classes and the prevailing interest rates. This relationship is usually characterized by how the different markets normally react to changes in one asset class, prevailing rates of interest or from an external stimulus such as the state of an economy. While no direct relationship is quantifiable from such inter-market linkage some correlations from these have been observed though it should be noted that these remain to be loosely interrelated as intervening factors persist.

 

III. Economic Lingo

IV. FOREX Trading Strategies

V. Technical Indicators

VI. FOREX Glossary




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