Foreign exchange market

About: Foreign exchange market is a research topic. Over the lifetime, 6661 publications have been published within this topic receiving 153384 citations. The topic is also known as: forex & FX.

Conflicts between Home & Host Country Prudential Supervisors

Abstract: Potential conflicts between home and host supervisors are legion and may impose heavy compliance costs on internationally active banks, create competitive distortions and jeopardize financial stability. Nonetheless, in comparison to efforts to achieve international cooperation in other economic spheres such as trade, exchange rates and macroeconomic policy, efforts to achieve international cooperation among bank supervisors are relatively recent. They sprang from the unanticipated consequences of applying traditional domestic closure practices to a bank that had substantial cross-border activities. When the West German authorities closed Bankhaus Herstatt at 4:00 pm CET on June 26, 1974, they followed normal domestic procedures and waited until the end of the business day. But this was mid morning in New York, where the dollar leg of $625 million of Herstatt’s foreign exchange contracts remained to be settled. The closure of Herstatt thus resulted in abrogation of these foreign exchange contracts in New York and caused a prolonged disruption in foreign exchange trading and dislocations in the broader Eurodollar market as well. In reaction to the Herstatt crisis, the central bank governors of the Group of Ten formed what later became known as the Basel Committee on Baking Supervision (“Basel Committee”)

Asymmetric Information and Price Discovery in the FX Market: Does Tokyo Know More About the Yen?

Abstract: We identify a period in the foreign exchange market when there is a high concentration of informed yen/dollar traders active in Tokyo. We exploit the data during this period to test implications of market-microstructure theory. Comparing the period of informed trader clustering to a similar period without the informed, we find the following results: 1. Exchange rate quotes adjust to full-information levels six times faster when the informed are active than when they are not. 2. Japanese quotes tend to lead the rest of the market when the informed are active. At other times, two-way causality is observed in quotes. 3. The contribution of Japanese quotes to yen/dollar price discovery relative to quotes of the rest-of-the-world is 5 to 12 percentage points higher when the informed are active compared to when they are absent. These results are consistent with a view of the foreign exchange market where private information is at times quite important, yet "normal" times are characterized as periods where public information, shared equally by all, results in a high contemporaneous correlation across quotes, regardless of origin.

Exchange rates and outward foreign direct investment: US FDI in emerging economies

Abstract: This paper investigates the effect of exchange rates on US foreign direct investment (FDI) flows to a sample of 16 emerging market countries using annual panel data for the period 1990–2002. Three separate exchange rate effects are considered: the value of the local currency (a cheaper currency attracts FDI); expected changes in the exchange rate (expected devaluation implies FDI is postponed); and exchange rate volatility (discourages FDI). The results reveal a negative relationship between FDI and more expensive local currency, the expectation of local currency depreciation, and volatile exchange rates. Stable exchange rate management can be important in attracting FDI.