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Finance Case

Autor:   •  December 9, 2012  •  Essay  •  801 Words (4 Pages)  •  775 Views

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Every time a company, government or an individual bought a commodity or product from another country, they are making a foreign exchange transaction. Before the internet revolution, the only way for trading currencies is by bank trading system. In this system, opportunities are limited since the minimum amount to open an account is one million. Nowadays the market has changed because of the technology. You can with a few hundreds of dollars trade currencies via internet from Sunday till Friday from 1 A.M till 11 P.M. US Dollars, Japanese Yen, Euro, British Pound and Swiss Franc are the most important these currencies are typically known as "majors" as opposed to "minors" and even "exotic", which symbolize all other currencies traded on Forex. Trading begins in the Asia-Pacific region followed by the Middle East, Europe, and America.

Trading currencies is done for hedging or speculation, but much like any investments, it must be analyzed. Fundamental and technical analysis are the two most widely methods that helps in making an appropriate trade decisions in the Forex market. Fundamental analysis is a type of market analysis which involves studying of the economic situation of countries to trade currencies more effectively. It gives information on how political and economical events influence currency market (forex-fundamental-analysis.com). As well as it helps Forex traders to understand the economical situations through the study of: Interest rate, employment situation, trade balance, GDP and so forth. It provides a long term view of the strength of a currency based on economic situation of the country using the currency plus current supply and demand, this method is difficult to be used on a daily basis.

Kirkaptric and Dahlquist (2010) define technical analysis as the study of prices in freely traded markets with the intent of making profitable trading or investment decision (p.3). It believes that traders can predict prices by looking at its historical prices. It helps Forex traders understand the past price action of a currency. Both types have the same goal is to maximize the positives, and minimize the negatives.

Technical analysis specifically attracts the attention of economist as its success doubt upon the Efficient Market Hypothesis (EMH) since the last suggests that technical analysis is a "waste of time" and it is the same as other financial analyst. EMH is an investment theory that states it is impossible to "beat the market" because market efficiency causes existing share

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