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.

Sizing up global foreign exchange markets

Abstract: The latest BIS Triennial Survey shows that global foreign exchange trading increased to more than $6 trillion per day. Trading bounced back strongly following a dip in 2016, buoyed by increased trading with financial clients such as lower-tier banks, hedge funds and principal trading firms. Prime brokerage volumes recovered in tandem. These developments were driven in large part by the greater use of FX swaps for managing funding and greater electronification of customer trading. They led to further concentration of trading in a few financial hubs.

Speculative attacks and the information role of the interest rate

Abstract: This paper models currency attacks as carried out by speculators who condition their actions on private signals about the state and on the market-clearing interest rate. Besides affecting speculators' payoffs, this interest rate also provides an endogenous public signal. For a plausible type of investment strategies, the dual role of the interest rate allows the model to explain abrupt and intense speculative attacks solely via economic fundamentals, without resorting to sunspot variables. This result underlies a novel policy implication: An official intervention in the foreign exchange market may reinforce a currency peg by influencing the precision of public information. (JEL: D82, D84, F31)

A Transaction Level Study of the Effects of Central Bank Intervention of Exchange Rates

Abstract: We study the effects of sterilized intervention operations executed on behalf of the Swiss National Bank (SNB) using tick-by-tick transaction data between 1985-95.We extend preliminary analysis conducted by Fischer and Zurlinden (1999) by matching these data with intra-day indicative exchange ate quotes and with news-wire reports of central banks' activity. Via an event study analysis we find that intervention has important short-run effects on exchange ate returns and volatility. In particular, among various results, we find that intervention i) has a stronger impact when the SNB moves with-the-market and when its activity is concerted with that of other central banks, ii) is partially anticipated by the market and iii) temporarily reduces market liquidity.

Predicting Volatility in the Foreign Exchange Market

Abstract: Measures of volatility implied in option prices are widely believed to be the best available volatility forecasts. In this paper, we examine the information content and predictive power of Implied Standard Deviations (ISD's) derived from CME options on foreign currency futures. The paper finds that statistical time- series models, even when given the advantage of "ex post" parameter estimates, are outperformed by ISD's. ISD's, however, also appear to be biased volatility forecasts. Using simulations to investigate the robustness of these results, the paper finds that measurement errors and statistical problems can substantially distort inferences. Even accounting for these, however, ISD's appear to be too variable relative to future volatility.

The emergence of bull and bear dynamics in a nonlinear model of interacting markets.

Abstract: We develop a three-dimensional nonlinear dynamic model in which the stock markets of two countries are linked through the foreign exchange market. Connections are due to the trading activity of heterogeneous speculators. Using analytical and numerical tools, we seek to explore how the coupling of the markets may affect the emergence of bull and bear market dynamics. The dimension of the model can be reduced by restricting investors' trading activity, which enables the dynamic analysis to be performed stepwise, from low-dimensional cases up to the full three-dimensional model. In our paper we focus mainly on the dynamics of the one- and two- dimensional cases, with numerical experiments and some analytical results, and also show that the main features persist in the three-dimensional model.