Banks are commercial establishments licensed as deposit takers. These banks are mainly concerned to make and receive payments. However, they also support a variety of other services including foreign exchange.
These banks will exchange currency them as a system of balancing accounts. Interbank market covers the majority of net sales and a lot of speculation (speculative trading) day affair.
Some of this trading activity is undertaken on behalf of customers, but a large amount of trade is conducted by industrial property offices, where retailers are trading for the benefit of the banks. During the exchange rates for their greatest customers are extremely competitive, small and medium enterprises and individuals typically pay a large premium by exchanging foreign currencies with their local branch.
A large bank may market billions of dollars daily.
Transactions by volume are:
· 53% between banks;
· 33% between a bank and a fund manager or a non-banking financial institution;
· and finally to 14% between a bank and a non-financial firm.
National central banks:
They play an important role in the currency market. They try to control the money supply, inflation and / or interest rates and try to get official rates for their currencies. They can use their foreign exchange reserves, also often substantial, to stabilize the market.
Eg The Canadian central bank usually lets the market determine the value of the Canadian dollar. But there are some exceptions to this policy. The central bank will intervene to buy or sell Canadian dollars if it believes a substantial decrease or overvaluation of the dollar could cause a negative effect on the economy.
But usually a simple intervention of the central bank rumor is enough to stabilize a currency, but aggressive intervention is sometimes necessary in countries with a floating exchange rate.
However, central banks do not always achieve their objectives. Sometimes the combined resources of the market can easily overwhelm any central bank.
Eg collapse ERM 1992-93 (Bank of England), and most recently in Southeast Asia.
Interbank brokers:
Up to recently, foreign exchange brokers have made a great deal of business, facilitating anonymous market and interbank counterparties sets for relatively small fees. Today, however, many of these cases go to more efficient electronic systems that operate as closed circuit for banks only. Box dealer always provides an opportunity to see the current interbank trade in most trading rooms, but turnover is noticeably smaller that a year or two ago.
Speculators:
In a few words, speculative activity is to buy and sell a currency for the sole purpose of profit. This is a quick transaction, in 80% of cases, is within 7 days.
In terms of volume:
- 5% involves governments and businesses
- Transactions remaining 95% relates to speculation
Many people consider speculation, particularly speculation of currencies, such as antisocial behavior.Political maneuvering about currency speculators and their effect on the devaluation of the currency and at the national economy occur regularly.
Ex: S eptember 1992: American speculator George Soros orchestra an attack against the British pound.Believing that the British currency is overvalued, it sells in droves. Others will follow. In a few hours, and despite the efforts of the Bank of England to stem the fall of its currency, this scheme yields a billion dollars to Soros. In the process, the raid resulted in the collapse of the European monetary system. A debacle that has had a theater named FOREX market, where the wildest dreams alongside darkest nightmares.
التسميات
forex