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risk management practice in forex market.docx
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1.2.3 Forex market participants

All participants of foreign exchange market can be divided on two categories:

  1. Active, which directly effect on pricing and market life (also called market makers (market-makers))

  • central banks

  • commercial banks

  • brokerage houses

  1. Passive participants in foreign exchange market (market users) cannot put their proposals in the currency market. That is, they use already have on the market, that offer active participants. They have only the choice of proposed by market-makers list prices; they cannot set their own exchange rates.

  • individuals

  • Firms that conduct foreign trade operations

  • investment funds

  • export-import companies

  • Central banks. Their main objective is exchange regulations in foreign markets, to prevent sharp jumps of national currencies in order to prevent economic crisis, maintain balance of exports and imports, etc. Central banks have a direct impact on currency market. Their influence can be direct - in the form of intervention, and indirectly - through control of the money supply and interest rates

  • Commercial banks they conduct the bulk of foreign exchange transactions. In banks hold maintain accounts of other market participants, and carried out through them necessary purpose conversion and its deposit-lending operations. Banks focus the combined needs of commodity and stock markets in the exchange currencies and also in attraction / placement of funds. In addition to satisfying clients' requests, banks can operate independently, using their own funds. Ultimately, the international foreign exchange market (Forex) represents the inter-bank market transactions. On world currency markets have the biggest influence international banks, the daily volume of transactions of billions of dollars. This banks such as Barclays Bank, Citibank, Chase Manhattans Bank, Deutsche Bank, Swiss Bank Corporation, Union Bank of Switzerland and other.

  • Brokerage houses in contrast to the stock exchanges and market of currency transactions for the duration of foreign exchange markets are not in a building, and at certain times. Due to development of telecommunications most of the leading financial institutions in the world use the services of exchange markets directly and through intermediaries any time. The biggest international exchanges are the London, New York and Tokyo exchange markets. In several countries with transitional economies foreign exchange, functions include the currency exchange of legal entities and forming a market exchange rate. The government usually actively regulates the exchange rate, using the compactness of the brokerage houses

  • Firms that conduct foreign trade. Companies involved in international trade, have a stable demand for foreign currency (in terms of importers) and as supply of foreign currency (exporters), as well as locate and attract free currency balances in short-term deposits. In this case, these organizations do not have direct access to the foreign exchange market and spend conversion and deposit transactions via commercial banks.

  • Investment funds. These companies, represented by various international investment funds, implement the policy of diversified portfolio management, placing funds in securities of governments and corporations of different countries. The best known are the Quantum Fund, George Soros, as well as funds Morgan Stanley Dean Witter and the Fidelity Fund. Firms of this kind are also large international corporations engaged in foreign manufacturing investment: the creation of subsidiaries, joint ventures, etc., such as General Motors, British Petroleum and others.

  • Individuals carrying out a wide range of non-commercial operations of foreign tourism, remittances, pensions, royalties, buying and selling foreign currency. It is also the largest group of conducting foreign exchange transactions for speculative purposes.

  • Foreign exchange brokerage firms. These together a buyer and a seller of foreign currency and conduct between conversion or lending and deposit operations. Brokers pick counter sales orders and purchase, allowing the anonymity of the parties. After the transaction announced the names of the participants for making payments. For his mediation brokerage firms charge a brokerage commission as a percentage of the transaction amount and it does not open up their own positions. As a rule of thumb, bank dealers have direct lines of communication with brokers. Last broadcast their prices speakerphone (voice brokers) or electronically on the screen.

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