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INTER meaning between and Bank meaning
deposit taking institutions. The market has moved
on to such a degree now that the term interbank
now means anybody who is prepared to buy or sell
a currency.
It could be two individuals or your
local travel agent offering to exchange Euros for
US Dollars. You will however find that most of the
brokers and banks use centralized feeds to insure
reliability of quote.
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The quotes for Bid (buy) and Offer
(sell) will all be from reliable sources. These
quotes are normally made up of the top 300 or so
large institutions. This insures that if they place
an order on your behalf that the institutions they
have placed the order with is capable of fulfilling
the order.
Now although we have spoken about
orders being fulfilled, it is estimated that anywhere
from 70%-90% of the FX market is speculative. In
other words the person or institution that bought
or sold the currency has no intention of actually
taking delivery of the currency. Instead they were
solely speculating on the movement of that particular
currency.
Source: Bank For International Settlements
http://www.bis.org
Extract From The Triennial Central Bank Survey of
Foreign Exchange and Derivatives Market Activity.
| Currency |
1989 |
1992 |
1995 |
1998 |
2001 |
| US Dollar |
90 |
82.0 |
83.3 |
87.3 |
90.4 |
| Euro |
|
|
|
|
37.6 |
| Japanese Yen |
27 |
23.4 |
24.1 |
20.2 |
22.7 |
| Pound Sterling |
15 |
13.6 |
9.4 |
11.0 |
13.2 |
| Swiss Franc |
10 |
8.4 |
7.3 |
7.1 |
6.1 |
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As you can see from the above table
over 90% of all currencies are traded against the
US Dollar. The four next most traded currencies
are the Euro (EUR), Japanese Yen (JPY), Pound Sterling
(GBP) and Swiss Franc (CHF).
As currencies are traded in pairs
and exchanged one for the other when traded, the
rate at which they are exchanged is called the exchange
rate.
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These four currencies traded against the US
Dollar make up the majority of the market and are
called major currencies or the majors.
As you can see from the above table
over 90% of all currencies are traded against the
US Dollar. The four next most traded currencies
are the Euro (EUR), Japanese Yen (JPY), Pound Sterling
(GBP) and Swiss Franc (CHF).
As currencies are traded in pairs
and exchanged one for the other when traded, the
rate at which they are exchanged is called the exchange
rate. These four currencies traded against the US
Dollar make up the majority of the market and are
called major currencies or the majors.
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