Financial Resource

Introduction to Forex Market :

To prevent the speculation , it was proposed to tax transactions in foreign exchange markets. This tax, the Tobin tax, named after the professor who first suggested in 1972 held at the Janeway Lectures at Princeton, was originally to be levied on all foreign exchange transactions in cash and aimed to mitigate the volatility of exchange rates and increase the effectiveness of macroeconomic policies. At the time, however, this proposal was coolly received by economists.

Recent financial crises have, however, revived the interest of economists for the Tobin tax.In France, the Socialist Party and Mr. Laurent Fabius, President of the National Assembly, have also recently supported the concept, however they perceive as a second-order, lack of other interesting proposals. Although the primary function of this tax was to contain speculative activity and volatility in exchange markets, it has enormous potential in terms of raising funds internationally. The tax base, estimated in April 1998 to $ 1500 billion per day, is so broad that a levy, even modest, would raise considerable sums. It is therefore not surprising that politicians and activists, supporters of public financing of international development have remitted the tax to the agenda.

The tax base is however very sensitive to changes in transaction costs. Some transactions, especially those who are not speculative in nature, would be more profitable if they were subject to such tax, even very low, and this will decrease the tax base.

In this era of globalization, national autonomy in monetary and fiscal eroding. The growing disparity between economic and political spaces encourages governments to redefine the scope of their activities. The growth of international trade in goods and services leads to increased integration of national economies. This internationalization has led to an expansion of foreign exchange markets and forced governments to accept some loss of control.

Traditionally, global financial flows have the role of financing international trade of goods and services and direct investment abroad. Today however, most international financial transactions are motivated by many other concerns. The liberalization of capital flows has opened the door to new investment opportunities and greater diversification of portfolios.Over the past decade, the volume of transactions in foreign exchange markets increased by 150 per 100 because of the changing attitudes of investors vis-à-vis the new investment opportunities.

Among the international capital flows, the share of portfolio investment has grown apace since the 80s (see Table 1). The first thrust into the collapse of the Bretton Woods system, under which exchange rates were fixed. Thus, rich countries have adopted a system of floating exchange rates and eased restrictions on foreign capital movements. By the mid-80s, most developing countries had also abandoned their capital controls. That opened the door to foreign investors and contributed to a surge in international investments, some of which are speculative.

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