Download - Forex Market Participation
8/8/2019 Forex Market Participation
http://slidepdf.com/reader/full/forex-market-participation 1/2
FOREX MARKET PARTICIPATION
10 largest bank which make up the foreign exchange market....account for 75% of the over 3
trillion $ daily trading volume.
Central banks also participate in the foreign exchange market...2 reasons for participating:
1)to fixed or pegged the value of its currency to a particular level...the currency of some
developing countries are fixed and valued to the dollar or to some other currency or basket of
currency....this is to try nd promote international competitiveness in the market and a currency
environment which is more conducive to economic stability....
Eg...China...maintained a fixed value of currency against a US dollar
A central bank accomplishes this by.......buying there own currency when the value gets too weak,
creating more demand and therefore driving the value up....and selling the currency when the it
gets too strong creating a greater supply of the currency and therefore lowering its value back to
the desired level.
2)is to protect the value of its floating currency from extreme movements
...japan,us,eurozone nd other major economies have floating exchange rates
The value of the currency is determined by market forces...although the value of this currency
flows freely in the mkt most of the time...
Currency strengths or weakness has a dramatic effects on the countries international
competitiveness....there r instances when central bank intervenes in the market even with the
major currencies..normally this is only seen after a large one direction move in the market...to the
point where countries stability and competitiveness is seriously damaged
y It was six years ago when the Bank of Japan last intervened in the currency
market. In 15 months through March 2004, the BOJ sold ¥35 trillion yen ($421.7
billion) for dollars. What was the BOJ trying to accomplish? As noted back then
Economy Trade and Industry Minister Takeo Hiranuma said "a dollar at ¥115.00 is
the ultimate life-and-death line for Japanese exporters".
Two comments:
Since then the yen has increased by 35% in value relative to the U.S. dollar and this hasn't
let to the "death" of Japan's export economy
Even after a year year+ long intervention effort the Bank of Japan ultimately failed to stem
a substantial appreciation of the yen.
Yen bulls may take some comfort in this history. However, currency investors should also
be aware that the Bank of Japan is generally considered to be a worthier opponent than
other central banks which have recently failed to halt a rise in their currencies.
8/8/2019 Forex Market Participation
http://slidepdf.com/reader/full/forex-market-participation 2/2