Part 2 of 15
Introduction to Currency Exchange Markets
Series #1: how forex markets work, who the major players are, and what drives exchange rates, with context for the Iraqi Dinar.
Read the one before this?
Currency Market Trading Hours and Global Impact
In today’s interconnected global economy, currency exchange markets play a vital role in facilitating international trade, investment, and tourism. For DinarView users looking to convert between the Iraqi Dinar and other major currencies, understanding how these markets work provides valuable context for making informed decisions. This is the first article in our series “Understanding Currency Markets,” and it explores the fundamentals of currency exchange markets, the major players involved, and the factors that influence exchange rates.
What Are Currency Exchange Markets?
The foreign exchange market — commonly known as the forex or FX market — is where currencies are traded against one another. Unlike stock markets, which operate from physical locations such as the New York Stock Exchange, the currency market has no central location. Instead, it functions as a global electronic network of banks, financial institutions, corporations, governments, and individual traders.
With an estimated daily trading volume exceeding $6.6 trillion, the forex market is the largest and most liquid financial market in the world. It operates 24 hours a day, five days a week, spanning different time zones from Sydney to New York.
What the market is actually made of
“The foreign exchange market” sounds like one thing. It is five, and they are very different sizes. Every three years the Bank for International Settlements counts them, and the April 2025 survey is the most recent count there is.
| Instrument | Daily turnover, April 2025 | Share | What it is |
|---|---|---|---|
| Spot | $2,957bn | 31% | Money changes hands now, at today’s rate. This is what an exchange office does. |
| Forwards | $1,847bn | 19% | A rate agreed today for an exchange on a future date. An importer’s hedge. |
| FX swaps | $3,986bn | 42% | Two legs: buy now, sell back later. Banks use these to manage short-term funding, not to speculate. |
| Options | $634bn | 7% | The right, not the obligation, to exchange at a set rate. Turnover more than doubled since 2022. |
| Currency swaps | $172bn | 2% | Long-dated funding across currencies. The smallest line, and the least changed. |
Net-net basis, daily averages in April 2025, in billions of US dollars. Source: BIS Triennial Central Bank Survey 2025, Table 1.
The first row is the one that describes Iraq. Spot trading — money changing hands now, at today’s price — was $2,957 billion a day worldwide in April 2025, 31 per cent of the market and up from 28 per cent in 2022. Everything an exchange office on Kifah Street or in the Erbil bazaar does falls in that row. The other 69 per cent of the world’s foreign exchange market is made of contracts about the future, and Iraq has almost none of it: there is no functioning forward market in dinars, which is precisely why an Iraqi importer’s only real hedge is to hold dollars.
Major Players in Currency Exchange
The currency exchange ecosystem involves several key participants:
1. Commercial Banks and Investment Banks
Banks form the foundation of the forex market. Major international banks such as JPMorgan Chase, Citibank, Deutsche Bank, and HSBC handle enormous transaction volumes daily. These institutions not only serve their clients’ currency needs but also trade for their own accounts.
2. Central Banks
Central banks, such as the Federal Reserve (United States), the European Central Bank, the Bank of England, and the Central Bank of Iraq, play crucial roles in currency markets. They:
- Implement monetary policies that directly affect currency values
- Intervene in markets to stabilize their currencies when necessary
- Manage foreign currency reserves
- Set interest rates that influence currency strength
The Central Bank of Iraq (CBI), founded in 1947, manages the Iraqi Dinar and plays a pivotal role in maintaining its stability against major currencies such as the US dollar1,588+0.52%, including through its official rate of 1,310 IQD per dollar1,588+0.52%, in place since February 2023, and through the dollar auction (currency window) it holds for banks and licensed exchange companies.
3. Corporations and Businesses
Companies engaged in international trade regularly convert currencies to pay for goods and services. For instance, an Iraqi business importing products from China might need to convert Dinar to Renminbi to complete transactions. Multinational corporations also manage currency exposures related to their global operations.
4. Retail Exchange Platforms and Individuals
Online currency exchange platforms and licensed exchange offices allow individual travelers, workers, and investors to participate in the currency market. Whether you are planning a trip abroad, sending remittances to family, or simply tracking the market, platforms such as DinarView provide access to up-to-date rate information and convenient conversion services.
5. Hedge Funds and Institutional Investors
These sophisticated investors often take large positions in currency markets based on macroeconomic analysis, geopolitical events, and technical indicators. Their substantial trading volumes can influence exchange rate movements.
How Exchange Rates Are Determined
Exchange rates represent the value of one currency relative to another. For example, the Central Bank of Iraq’s official rate for the US dollar has stood at 1,310 IQD per dollar since February 2023 — meaning that, officially, 1 US dollar is equivalent to 1,310 Iraqi Dinar. In practice, the rate available at exchange offices and on the parallel (street) market is often higher than the official rate, reflecting demand for dollars outside the CBI’s official channels; DinarView users should always check current rates on the app rather than relying on any figure quoted in an article like this one. Several factors influence exchange rates more broadly:
1. Supply and Demand
Like any market, currency values are fundamentally driven by supply and demand dynamics. When more people want to buy a currency than sell it, its value tends to rise. Conversely, when more people want to sell than buy, its value tends to fall.
2. Interest Rates
Countries with higher interest rates typically attract foreign capital seeking better returns, increasing demand for their currency. The Central Bank of Iraq’s monetary policy decisions on interest rates and liquidity form part of the broader framework that supports the Dinar’s value against other currencies.
3. Inflation Rates
Countries with consistently lower inflation rates generally see their currency’s value hold up better relative to nations with higher inflation. Stable prices signal economic strength and preserve purchasing power.
4. Political Stability and Economic Performance
Investors seek currencies from politically stable countries with strong economic fundamentals. Metrics such as GDP growth, employment figures, oil production and prices, and government spending all influence how attractive a currency appears to international investors — factors that matter directly for Iraq, given the economy’s dependence on oil revenue.
5. Market Sentiment and Speculation
Perceptions about future economic and political conditions can drive currency movements. News, forecasts, and geopolitical events can trigger rapid changes in exchange rates as market participants position themselves ahead of anticipated developments.
Types of Currency Transactions
Currency exchange transactions fall into several categories:
1. Spot Transactions
These involve the immediate exchange of currency at the current market rate. When someone visits an exchange office in Baghdad, Erbil, or Sulaymaniyah to convert US Dollars to Iraqi Dinar, that is a spot transaction — the most common type for individuals and businesses.
2. Forward Transactions
Parties agree to exchange currencies at a predetermined rate on a future date. These contracts help businesses protect against unfavorable exchange rate movements.
3. Swap Transactions
These combine spot and forward transactions, involving the exchange of currencies now with an agreement to reverse the transaction at a later date.
4. Options
Currency options give the holder the right, but not the obligation, to exchange currencies at a specified rate before a set expiration date.
Two more numbers from the same survey place the reader precisely. Trading between dealers accounted for 46 per cent of turnover; trading with other financial institutions — funds, smaller banks, asset managers — took 50 per cent. Non-financial customers, the category that contains every importer, exporter and traveller on earth, accounted for 5 per cent. And the market is geographically narrow: sales desks in the United Kingdom, the United States, Singapore and Hong Kong intermediated three quarters of all foreign exchange trading, the UK alone at about 38 per cent.
What this means in practice: the price you are quoted in Baghdad or Erbil is downstream of a market you are not in. Nothing an Iraqi exchange office does moves the dollar. What it does move is the dinar side, and that price is set locally — by how many dollars the Central Bank released this week, and how many people want them.
The Iraqi Dinar in the Regional Currency Market
The Iraqi Dinar (IQD) occupies a distinctive position in the region’s currency markets, shaped by Iraq’s oil reserves and geopolitical significance. While it is not among the most traded currencies globally, the Dinar is central to:
- Oil transactions and international trade involving Iraq
- Investment in Iraqi infrastructure and business
- Regional commerce across the Middle East
- Remittances sent by the Iraqi diaspora worldwide, often through hawala networks alongside formal banking channels
The Central Bank of Iraq carefully manages the Dinar’s exchange framework, particularly against the US Dollar, which serves as the key reference currency for an economy still dominated by oil revenue and still working through the long process of post-conflict and post-sanctions reconstruction.
Using DinarView for Currency Exchange
Understanding these market fundamentals helps DinarView users make more informed decisions when converting between the Iraqi Dinar and other currencies. Whether you are:
- Traveling to or from Iraq
- Sending money to family members
- Conducting business with Iraqi partners
- Simply following the market out of interest
having access to clear, up-to-date rate information is essential. DinarView brings together live market rates, city-level rates, and gold and crypto prices in one place, so you have the information you need when making currency decisions. This article is intended as general education and not as financial or investment advice; always verify current rates on the app before acting.
Conclusion
Currency exchange markets represent a complex global network in which countless factors influence the relative values of different currencies. For those following the Iraqi Dinar and its relationship with other world currencies, understanding market trends, economic indicators, and geopolitical developments provides a valuable edge.
In the next article of this series, we will look more closely at how live currency rates are calculated and updated, and how to interpret the information they provide when making exchange decisions.
Sources
- BIS Triennial Central Bank Survey 2025 — OTC foreign exchange turnover
- Central Bank of Iraq — official exchange rates
- Central Bank of Iraq — the currency window and transfer auction
- DinarView — live rate board
- DinarView — how our rates are collected
Rate figures marked DinarView are computed from this site’s own daily record. Everything else links to the publishing institution.
