Foreign exchange market provides a mechanism for transfer of purchasing power from one currency to another for its various constituents. Discuss.

The foreign exchange transaction (i.e., for the sale and purchase of foreign currencies) takes place in foreign exchange market, which provides a mechanism for transfer of purchasing power from one currency to another. This market is not a physical entity like the Mumbai stock exchange or a trading center; rather it is network of telephones among banks, foreign exchange dealers and brokers etc. The market is an over the counter market. The dealers sit in their dealing room of major commercial banks around the world and communicate with each other through telephones, computer terminals and Society for Worldwide Inter-bank Financial Telecommunication (SWIFT) mechanism. This is a non-profit Belgian cooperative with main and regional centers around the world connected by data transmission lines. The forex market is a wholesale market called the inter-bank market. Commercial banks are the market makers. Corporations use the foreign exchange market for a variety of purposes relating to their operation like payment for imports, conversion of export receipts, hedging of receivables and payables, payment of interest on foreign currency loans, placement of surplus funds etc.