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Submitted To:
T.S.Ramachandran
Professor
Institute of Management,Christ University
Introduction
The foreign exchange affects various economic factors as the output level, international capital flow
through risks and return of different assets and inflation through cost of imports and commodity
prices.
The dollar value of trading activity in spot and forward foreign exchange markets has daily average
turnover estimated significant times larger than the combined imports and exports for the worlds
largest economies. Recently, there has been a shift in the global distribution of currency trading from
London which constitutes of twenty percent trading to Asian regional centres as Hong Kong &
Singapore. The USD is the dominant currency traded in the Forex market against minor currency as a
vehicle currency. The spot trading in the foreign exchange is stable in nature and is highest with daily
turnover of $1.5 trillion and other activities as futures, currency options, swaps, constitutes $0.4
trillion as on 2010. Lehman Brothers bankruptcy led to growth of central bank swap activity which
was in order to stabilise the banking system. Yet still vast majority of the FX market remains
unregulated but manipulation by single entity is difficult in the foreign exchange market for major
currencies as it is very liquid.
Objective
The research article aims to review the agents which bring information into the foreign exchange
market and how their information affects the market price and study the evolution of foreign
exchange market.
Research Methodology used in Research Paper
Research Methodology used in the research article is survey of multiple banks on foreign exchange
platforms and conducted survey of 15 institutional and retail platforms and various reports from
institutions.
Findings
All Financial institutions and other hedge fund managers concentrate on maximising
expected returns to foreign assets measured in the home currency and hedging has become
Corporate customers avoid involving in foreign exchange forecasting and speculation and use
the market for supporting treasury operation related to their business activity. During hedging
of foreign cash flow is also avoid future exchange rate movements and favour maturity below
6 months.
Foreign exchange dealers earn income by speculating and providing liquidity to their
customers and in order to align interests of shareholders they receive bonus on profits. It has
been observed that foreign exchange interdealer are highest during short overnight when
Learning
The market reacts from the information given by customers to their dealers and interdealer
prices. Thus, there are two types of agents in the market namely pull agents who are informed
Conclusion
The foreign exchange market and structure is changing due to changes in objectives of entity
involved in the market and technological enhancements. This has led to increase in information flow
to different institutions and increase in foreign exchange trading and expansion of market centres
around the globe.
Reference: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2011/WP-201110/