Babe.comThe forex market (or foreign exchange) remains the single largest entity of its type, with an estimated £5 trillion traded during each 24-hour period.
While this highlights the popularity and liquidity of this market, however, it does not offer us an insight into the role that currency and the foreign exchange plays within the global economy.
Similarly, it does not showcase how important the foreign exchange is to a commodity-reliant region such as the United Arab Emirates (UAE), particularly from the perspective of businesses and investors. In this article, we will explore this in further detail and consider the numerous ways in which the foreign exchange impacts on the economy in the UAE:
1. It Creates Flexible and Constant Options for Traders
If you look back at 2016, the UAE was plagued by plunging commodity prices (specifically oil), which in turn triggered huge volatility in the stock market. This took a toll on an economy that relied on the prevailing level of demand for oil, while it also restricted investors and reduced trading volumes as a result.
In a bid to optimise their momentum and capitalise on a changeable, macroeconomic climate, traders flocked in droves to the forex market. This enabled them to trade currencies as derivative options, as they eschewed the burden of ownership and began to profit even in a depreciating market.
This is because online brokers like Ads Prime enable traders to speculate about the future performance of an underlying asset class, allowing them to hedge against specific currency pairings and profit as their values fall.
2. It Allows for International Payments and the Exchange of Currency
On an even more fundamental level, the forex market also plays a pivotal role in facilitating international
trade. This is the heartbeat of the global economy, while it has allowed the UAE to diversify its economic interests in recent times.
For multinational business or global, e-commerce ventures based in the UAE, the foreign exchange enables them to buy relevant currencies in bulk, minimise costs and time their overseas transactions to achieve financial efficiency.
So whether they need to import raw materials from overseas or pay international employees, the forex market allows firms to exchange funds affordably and make timely payments in local currencies.
3. It Underpins the Tourism Sector
As the UAE and major cities like Dubai have evolved, tourism has become an increasingly lucrative element of the Middle Eastern economy.
This sector would not thrive without the foreign exchange or forex market, as this provides an accessible and central entity through which individuals can exchange one international fund for another. Both recreational and business travellers drive a strong demand for a host of overseas currencies, as they monitor the exchange to time their transactions and achieve the best value for money.
The ease with which funds can be transferred helps to support a constant stream of visitors to the UAE, boosting reinvestment into the economy and helping it to reduce its reliance on oil.