The US foreign exchange market forms a substantial portion of the U.S. economy. This market is one of the most important sources of revenue for the United States government.
The official currency of the United States is the U.S. dollar. According to the ISO 4217 code, the U.S. dollar is represented or symbolized as USD. It is also symbolized as $ or US$. Currently, the United States dollar is the most accepted form of foreign exchange on the global foreign exchange market, and it ranks as one of the five principal currencies of the world. Numerous countries utilize the U.S. dollar as their functional currency, a process frequently called official dollarization.
The Federal Reserve Bank of the United States regulates the country’s foreign exchange market. It also holds the sole authority to issue the U.S. dollar banknotes and coins. The U.S. dollar is considered to be the standard unit or medium of foreign exchange for the global foreign exchange sector because of its high volume of liquidity and global recognition.
At present, the United States dollar is facing stiff competition from the Euro, andranks second after the Euro as the most important international reserve currency.
The functions of the US foreign exchange market are carried out by a number of institutions:
Foreign exchange dealers
Retail foreign exchange brokers
Investment management firms
Hedge fund institutions
Multinational corporations or MNCs
Retail foreign exchange traders
New York is an important foreign exchange trading center in the United States. The leading foreign exchange brokerage firms of the world have their headquarters located there.
The United States Commodity Futures Trading Commission is responsible for regulating different foreign exchange trading firms conducting businesses in the United States. The U.S. foreign exchange market is also known as U.S. forex market and is an over-the-counter (OTC) market because the transactions are carried out with the direct involvement of forex buyers and sellers.
The exchange rate of the U.S. dollar with respect to other foreign currencies is determined by the Federal Reserve. Both the Federal Reserve and the United States Treasury Department play a significant role in the U.S. foreign exchange market. The Federal Reserve Bank is primarily responsible for formulating the foreign exchange policies of the country.