Professional Documents
Culture Documents
The Foreign
Exchange Market
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Market Participants
The FX market consists of two tiers:
the interbank or wholesale market (multiples of $1MM
US or equivalent in transaction size banks, dealers,
financial institutions)
the client or retail market (specific, smaller amounts
general firms, individuals).
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FX market size
A triennial survey by the Bank for International Settlements
(BIS) estimates global FX trading volume usually in April:
April 2007:$3.2 trillion per day;
April 2010:$4.0 trillion per day;
April 2013:$5.3 trillion per day (not in the book)*
dramatic growth in FX trading: currency derivative
(forwards, swaps, options) > 60% volume (spot < 40%)!
1) London mkt still #1, then US, Singapore (economy
small), Japan, H.K.
2) $ most traded, then euro, yen, pound, Australian $,
Mexican peso 8th (significant increase), Yuan (CNY) 9th ! (a
surge!).
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FX Rates - Quotations
(Most foreign exchange transactions involve USD.)
- European term: foreign currency price of one dollar
- American term: dollar price of a unit foreign currency*
Ex) SF 1.6000/$ (European term); $0.6250/SF (American
terms)
- direct quote: home currency price of a unit foreign currency
- indirect quote: foreign currency price of a unit home
currency
Ex) SF 1.6000/$ (European term) direct quote for a Swiss
& indirect quote for an American
Confusingly enough, using ISO** 4271 codes (e.g. USD, EUR,
GBP, JPY, CHF, MXNlast page of the book):
- SF 1.6000/$ (European term) = USD/CHF 1.6
- $0.6250/SF (American term) = CHF/USD 0.6250
i.e. / is NOT a divisor ()
however, in practice conventions vary; in this class either SF
1.6000/$ or CHF 1.6/USD i.e. / is a divisor!
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x 100
x 100
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