What is an Exchange traded fund? It basically embroils the exchange of currencies by two parties, it is essentially a currency swap. A currency swap is analogous to the foreign exchange market activities. In simple terms it engrosses two parties exchanging currencies, one party has to hold for the risk of his or her currency value depreciating while the other parties currency value increases.
For instance in the case of a foreign student studying In the United States in order for him or her to transfer his or her U.S dollar in to Chinese Yen when returning home to China, he or she has to find a party who holds Yens willing to buy dollars with those proceeds, it could be an investor or similarly a foreign student from the United States willing to buy Dollars for his or her return home. Since currency values fluctuate, one party’s currency value could decrease while the other party’s value increases, it is for this fundamental reason that the foreign exchange market operates.
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