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.

Trading on the Edge: Neural, Genetic, and Fuzzy Systems for Chaotic Financial Markets

Abstract: From the Publisher: Only a decade ago, spreadsheets were first invented for financial applications. At the time they were considered sophisticated modeling tools. Today machine intelligence is a core concept in describing advanced technologies that can develop more sophisticated models. Neural networks, genetic algorithms, and fuzzy systems provide new opportunities for automated trading, risk, and portfolio management. Machine learning techniques are quietly being used by investment managers for stock selection, bond pricing, foreign exchange trading, and market and bankruptcy predictions, as well as many other applications. They are the next step in the evolution of investment technology. Now, Trading on the Edge lets you in on this evolution. Assembled and edited by Guido J. Deboeck, a pioneer in the introduction of new technologies and financial applications of neural nets at the World Bank, this book is the product of more than a dozen authors around the globe who, over the past several years, have used these advanced technologies for investment management. The contributions from these experts demystify the application of these techniques and explore their impact on modern finance theory and practice. Most importantly, they show you how to apply those powerful techniques to automate trading, reduce risk, and improve portfolio management. Clearly, concisely, and in terms that traders and investment managers can relate to, this book shows how neural networks can learn complex patterns from vast quantities of data and generalize with amazing speed from learned experiences; how genetic algorithms can evolve solutions to problems in the way nature does; how fuzzy systems provide concrete solutions to problems based on vague parameters; and how nonlinear dynamics, fractal analysis, and chaos theory define order in what once were considered random changes in financial markets. The real-life case studies provided by these experts delineate proven strategies for applying advanced tech

Crossing Networks and Dealer Markets: Competition and Performance

Abstract: This paper studies the interaction between dealer markets and a relatively new form of exchange, passive crossing networks, where buyers and sellers trade directly with one another We find that the crossing network is characterized by both positive ~“liquidity”! and negative ~“crowding”! externalities, and we analyze the effects of its introduction on the dealer market Traders who use the dealer market as a “market of last resort” can induce dealers to widen their spread and can lead to more efficient subsequent prices, but traders who only use the crossing network can provide a counterbalancing effect by reducing adverse selection and inventory holding costs COMPETITION BETWEEN EXCHANGES for order f low is a growing phenomenon in financial markets From London to Paris to Tel Aviv, exchanges and trading systems are introducing new trading mechanisms that compete for order f low In the United States, the SEC promulgated new rules that redefine the regulation of Alternative Trading Systems and intensify the competition between existing exchanges and new electronic markets Indeed, new electronic trading venues are cited as the reason for a decline in the value of seats on major exchanges, even though trading volumes are growing rapidly What will be the impact of new trading mechanisms on market participants and on existing dealer markets ~DMs!? In this paper we study the effect of introducing a passive call market that competes with an existing traditional DM The DM is based on competing market makers as in Nasdaq, the London Stock Exchange, the Foreign Exchange market, and the US government securities market An important benefit provided by the DM is the assurance of immediate execution An important disadvantage is the cost: the bid-ask spread, which can be substantial Traders who do not place a high value on immediacy and assured execution can try to reduce their trading costs by searching for counterparties on their own As computing and communication costs have declined, electronic communication networks have been increasingly deployed to reduce search costs, making it less costly for traders to find one another and reducing the demand for DMs

Bank Negara Malaysia

Abstract: Bank Negara — Malaysia's central bank — reported on March 31, 1994 staggering foreign exchange losses of Malaysian Ringgit M$ 5.7 billion (equivalent to $2.1 billion), which followed an even larger loss of M$9 billion in 1992 ($3.3 billion). Jaffar bin Hussein—Bank Negara's long serving governor—was forced to resign on April 1, 1994 the day following the disclosure of the mammoth foreign exchange losses. Under normal central banking practices, such losses would have been the result of costly and legitimate but unsuccessful attempts by Bank Negara's at stemming the rise of its currency due to speculative capital inflows (see Box A). Indeed, in January 1994, The Economist reported that Bank Negara had declared war on “currency speculators,” who were buying Ringgits in anticipation of its appreciation. “But as the world's foreign exchange dealers well know, Bank Negara has long been a big punter in the currency market itself. In the last two years, its boldness has been matched only by its incompetence.” Indeed, as early as 1988, Jaffar had announced that to the traditional goals of providing safety and liquidity in managing its foreign exchange reserves, Bank Negara henceforth would add “profit optimization and market expertise,” which soon became a code word for currency speculation.

A Survey of Empirical Research on Nominal Exchange Rates

Abstract: We survey the empirical literature on floating nominal exchange rates over the past decade. Exchange rates are difficult to forecast at short- to medium-term horizons. There is a bit of explanatory power to monetary models such as the Dornbusch 'overshooting' theory, in the form of reaction to 'news' and in forecasts at long-run horizons. Nevertheless, at short horizons, a driftless random walk characterizes exchange rates better than standard models based on observable macroeconomic fundamentals. Unexplained large shocks to floating rates must then, logically, be due either to innovations in unobservable fundamentals, or to non-fundamental factors such as speculative bubbles. The observed difference in exchange rate and macroeconomic volatility under different nominal exchange rate regimes makes us skeptical of the first view. The theory and evidence on speculative bubbles, however, is not conclusive. We conclude with the hope that promising new studies of the microstructure of the foreign exchange market might eventually rise to insights into these phenomena.