It is an organic whole composed of a variety of elements. It has its own formation and operation mechanism. Generally speaking, its operation mechanism mainly includes supply and demand mechanism, mechanism, efficiency mechanism and risk mechanism.
1. The relationship between supply and demand is the basis for the formation of market exchange rate, which in turn regulates the supply and demand of foreign exchange.
Due to the complex composition of foreign exchange market participants, buyers and sellers have different purposes, so to reveal the supply and demand relationship needs to start with a specific analysis of each trader.
2. Exchange Rate Mechanism The exchange rate mechanism refers to the connection and interaction between the rise and fall of exchange rate in foreign exchange market transactions and the change of foreign exchange supply and demand.
Generally speaking, a higher exchange rate means that the buyer has to spend a higher cost, which will lead to a decrease in the demand for foreign exchange, and lead to a relatively excessive supply of foreign exchange, resulting in a decline in the exchange rate.
When the exchange rate drops to the equilibrium point or below the equilibrium point, the demand for foreign exchange will increase rapidly, so that the supply and demand relationship will return to a new equilibrium state, and the exchange rate will rise.
3. Efficiency mechanism Efficiency mechanism is a mechanism that can promote fair competition, fair and rapid trading in foreign exchange market and promote reasonable allocation of capital.
Generally speaking, market efficiency means that market prices can reflect and promote the correct allocation of resources, provide sufficient and accurate information in time, and provide reference for investors to make decisions.
4. Risk mechanism The risk mechanism in the operation of foreign exchange market mainly refers to the interrelation and interaction between the increase or decrease of risks in foreign exchange transactions and exchange rate changes.
