- Elgar original reference
Edited by Andrew W. Mullineux and Victor Murinde
Chapter 10: Foreign Exchange Trading Activities of International Banks
10. Foreign exchange trading activities of international banks Jürgen Eichberger and Joachim Keller* 1 INTRODUCTION After the Bretton Woods system of ﬁxed exchange rates was abandoned in 1973, foreign exchange trading increased exponentially. Two trends characterized the developments. On the one hand, a rapid increase in the total number of transactions in the foreign exchange market was observed. Over the past ten years, turnover in foreign exchange markets has nearly tripled (see Table 10.1). On the other hand, a major change in nature of the instruments traded took place. Trade in forward contracts and currency swaps increased more than proportionally. In 1989, forwards and swaps were roughly 40 per cent of total foreign exchange transactions. A decade later, these transactions account for 60 per cent of foreign exchange turnover.1 Although spot transactions, that is, exchanges of currencies which have to be settled within two days, have declined as a proportion of total transactions, they are still the main type of transactions (more than 70 per cent) for currency pairs which do not involve the US dollar (BIS, 1999, p. 13). International asset management and trade in derivatives, however, gained growing importance in the foreign exchange market. Transactions in the foreign exchange market typically consist of bilateral trade agreements between counterparties at preannounced prices. One party is usually a professional dealer or market maker2 who quotes bid and ask prices for a speciﬁc foreign currency contract. The other side of the bargain may be a trader with an immediate...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.