The word ‘foreign exchange’ itself stirs up much emotion in the heart of economists and traders alike. Simply put, foreign exchange involves converting money from one currency to another. Traders make money by buying and selling foreign exchange. So what is the factor that drives this business? It is simply the power of speculation that steers this trillion dollar economy. Traders and investors trade currencies which are believed to rise or drop in value in the near future. This means that they can sell or buy the currencies at higher prices later on and make a profit. Very often, speculation in itself can cause the value of a currency to appreciate or depreciate. For example if the Dollar is expected to decline in value, investors will start selling their own collections of Dollars and this will cause an excess supply in the economy. Therefore with an increased supply, the demand of the currency will decrease which will lower its price and have an affect which was being expected. This article takes an insight into this powerful global casino like business. Speculators make money from money. 


They will constantly move their money to places with higher interest rates as it guarantees higher rates of return. Regularly, on a daily basis, $1.5 trillion are traded in this manner. Trading in foreign exchange has outstripped the tangible trade which is worth in comparison a mere $6.5 billion.The bulk of the foreign exchange dealings are done by the 10 biggest global banking giants, which include CitiGroup, Chase Manhattan, HSBC and others. The banks act to safeguard their own interests by having policies that can help attract investors. They act on behalf of superannuation funds, insurance firms, and business clients. CitiGroup conducted $8.5 trillion worth of dealings in this manner during the year 1998. This amount outstripped the amount of GDP of USA in 1998.This concept however has some limitations and negative side effects. The idea of making money from money alone doesn’t show any investment in any tangible way. This means that there will be almost no job creation, and as a result no improvement in employment levels. It is the big banking giants that reap the harvest while leaving empty fields to the poor. The marginalized and poor people, who can’t pay the price, are negatively affected as businesses and economic entities withdraw funds due to speculation. This was the case with the emerging economies as the rapid withdrawal of funds triggered the Asian financial crisis. As is evident from history, the withdrawal of funds affects whole masses profoundly and plunges the affected economies into crisis; unable to finance its needs fully due to sudden money shortages and low saving levels. One way to stem the tide against speculative investment will be to implement the Tobin Tax. This tax aims to levy a certain percentage of tax on the exchange of each currency. This will help in stabilizing the currency and decreasing speculation. This tax can also help generate $300 billion annually in revenues. However before any financial practices are to be executed, political will is essential.