Question

Generally, what do market makers do on the foreign exchange market?

1) Buy and sell currencies
2) Provide liquidity
3) Set exchange rates
4) Regulate the market

Answer 1

Market makers on the foreign exchange market buy and sell currencies, provide liquidity, and contribute to the exchange rate determination.

Step-by-step explanation:

Market makers on the foreign exchange market perform several important functions:

1. Buy and sell currencies: Market makers actively participate in the buying and selling of different currencies. They provide a platform for traders to trade currencies with each other.
2. Provide liquidity: Market makers play a crucial role in ensuring that there is enough liquidity in the market. They do this by constantly quoting both buy and sell prices for currencies, thereby allowing traders to easily enter or exit positions.
3. Set exchange rates: While market makers do not have the authority to determine exchange rates, their continuous buying and selling activities contribute to the overall supply and demand dynamics in the market, which ultimately influences exchange rates.