The Eurodollar rate is used to calculate, determine, and evaluate the cash forwards and futures prices. In theory, to construct a forward exchange rate, one needs to factor only today's exchange rate for a currency by the interest rate the currency will gain over the given time. A forward market provides the currency exchange rate for delivery in the future. The more accessible a currency is to different countries, traders, and banks, the more it can be traded. The more trading that occurs in a currency, the greater its liquidity and therefore its efficiency.
Liquidity indicates the ease with which buyers and sellers are able to enter and exit the market.
The more traders that are buying and selling a currency, the greater the likelihood of a seller wanting to sell at the same price a buyer is willing to pay. A very liquid market has numerous participants buying and selling at the same prices. An extremely liquid market is said to be deep, signifying the large number of buyers and sellers willing to trade at any given price. The efficiency of any market is determined by its liquidity. Ideally, currency exchange rates are determined by the natural forces of supply and demand in an open market, free of the intervention by monetary authorities.