Since the early '70s, with increasing internationalization of financial transactions, the foreign exchange market has been profoundly transformed. Among the major developments that have occurred in the global financial environment are the following:
A basic change from the fixed exchange rate requirements of Bretton Woods that existed until the early 1970s, to the flexible legal structure of today, in which nations can choose to float their exchange rates or to follow other exchange rate regimes and practices of their choice.
A wave of financial deregulation throughout the world, with massive elimination of government controls and restrictions in nearly all countries, resulting in greater freedom for national and international financial transactions.
A fundamental move toward institutionalization and internationalization of savings and investment, with funds managers and institutions around the globe having vastly larger sums available, which they are investing and diversifying across borders and currencies in novel ways and in ever larger amounts as they seek to maximize returns.
A broadening trend toward international trade liberalization, within a framework of multilateral trade agreements, such as the GATT [General Agreement on Tariffs and Trade], NAFTA [North American Free Trade Agreement], and U. S. bilateral trade initiatives with China, Japan, and the European Union.
The foreign exchange market plays the indispensable role of providing the essential machinery for making payments across borders, transferring funds and purchasing power from one currency to another, and determining the exchange rate.
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