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Foreign exchange today may seem too complex for the average
person
to grasp. The images of the market that dominate the media—
walls of blinking computer screens, screaming traders, giant
blocks
of money traded at the speed of light, defined by an intricate
interplay
of events—reinforce this perception. But these images are
actually part of a facade, masking a relatively simple
transaction.
At its heart, each foreign exchange is a trade—an exchange of
one monetary unit (currency) for another.
Dealers and investors
may employ intricate strategies or use technical trading
language
and develop rich models, but that doesn’t fundamentally alter
the act.
Understanding this helps cut through the clutter,
misperceptions, and mystery that surround this market.
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Very little of what is
done in foreign exchange today is vastly different from how
individuals
have traded for thousands of years. The techniques and
tools have changed, but the simple exchange remains the same.
Because foreign exchange is in fact so old, it is important to
trace its roots, to explore how this market has evolved over the
millennia. Individuals—kings and emperors, traders and dealers,
common citizens and thieves—have employed all kinds of methods
to use money and markets to their advantage. Their strategies
have resulted in success and disaster. But all contain examples
and
lessons that will be helpful for the modern investor to
understand
this market.
This chapter also looks at the nature of money, how it has been
used by different societies throughout history, and how its
value
can fluctuate. What emerges is the story of a long struggle
between
government and markets over who gets to control money—a struggle
that continues to this day. |
