value of the goods was expressed in terms of other goods. This type of trade was called as the Barter System. The limitations of this system of trade paved the path for the introduction of ‘Money’and Money gave birth to the need to exchange different currency:- Foreign Currency trading.
The origin of Foreign Exchange (Forex) trading traces its history to centuries ago. The Babylonians are credited with the first use of paper notes and receipts. However, during this phase of history Speculation hardly ever happened.
During the middle ages, the introduction of a paper form of governmental I.O.U. gained acceptance. This type of I.O.U. was introduced more successfully through force than through persuasion.These paper bills represented transferable third-party payments of funds, making foreign currency exchange trading much easier for merchants and traders and causing these regional economies to flourish. These I.O.U’s have now become the basis of today's modern currencies.
From its infantile stages during the Middle Ages to First World war, the forex markets were relatively stable and without much speculative activity. During this phase, most Central banks supported their currencies with convertibility to gold. This standard had a major weakness called the ‘boom-bust’ pattern. As an economy strengthened (Boom), it would import a great deal from out of the country until it ran down its gold reserves required to support its money; as a result, the money supply would diminish, interest rates escalate and economic activity slowed to the point of recession (Burst). Ultimately, prices of commodities had hit bottom, appearing attractive to other nations, who would sprint into buying fury that injected the economy with gold until it increased its money supply, drive down interest rates and restore wealth into the economy (Boom again). This pattern appeared in a cyclical