Details of a Research Study on the Foreign Exchange Process in the Tanzanian Banking System

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Research Problem Definition The foreign exchange market is the oldest and most liquid money markets to ever exist having participants from banks, investment companies, and multinational corporations among others. This has increased daily transaction figures standing to approximately $1.2 trillion per day. In addition, the ever changing market conditions have forced foreign exchange dealers to modify trading procedures and operational procedures to help in managing the ever present risks. Until recently, Tanzania had a fixed foreign exchange system making foreign exchange risks unimportant and irrelevant issues to established domestic businesses. Given that the country’s foreign exchange market is decontrolled and liberalized, operational risks in foreign exchange practices as well as its management have become a matter of interest to the banking institutions and other in the financial markets (Assad, 2011). Operational risk is taken as a risk of direct or indirect loss resulting from failed internal procedures, systems as well as from external events. Operational risk for foreign exchange markets involves problems related with processing, product pricing, and valuation among others. According to a report by the Foreign Exchange Committee (2010), operational risks in foreign exchange dealings result from a variety of causes, including natural disasters, which can cause the loss of a primary trading site, or a change in the financial details of the trade or settlement
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