Topic
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.
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TL;DR: The authors analyzes the role of real exchange rate (RER) policies in promoting economic development and shows that a stable and competitive RER policy may correct for this externality and other related market failures.
110 citations
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TL;DR: The daily average foreign exchange market turnover reached $4 trillion in April 2010, 20% higher than in 2007 as mentioned in this paper, attributed largely to increased trading activity of other financial institutions, which contributed 85% of the higher turnover.
Abstract: Daily average foreign exchange market turnover reached $4 trillion in April 2010, 20% higher than in 2007. Growth owed largely to the increased trading activity of “other financial institutions”, which contributed 85% of the higher turnover. Within this customer category, the growth is driven by high-frequency traders, banks trading as clients of the biggest dealers, and online trading by retail investors. Electronic trading has been instrumental to this increase, particularly algorithmic trading.
108 citations
TL;DR: This work employs a node-centric approach that allows it to track the effects of the community evolution on the functional roles of individual nodes without having to track entire communities, and finds that exchange rates that are strongly attached to their community are persistently grouped with the same set of rates.
Abstract: We study the cluster dynamics of multichannel (multivariate) time series by representing their correlations as time-dependent networks and investigating the evolution of network communities. We employ a node-centric approach that allows us to track the effects of the community evolution on the functional roles of individual nodes without having to track entire communities. As an example, we consider a foreign exchange market network in which each node represents an exchange rate and each edge represents a time-dependent correlation between the rates. We study the period 2005–2008, which includes the recent credit and liquidity crisis. Using community detection, we find that exchange rates that are strongly attached to their community are persistently grouped with the same set of rates, whereas exchange rates that are important for the transfer of information tend to be positioned on the edges of communities. Our analysis successfully uncovers major trading changes that occurred in the market during the credit crisis.
108 citations
TL;DR: Hedgers are an integral element of most models of futures markets and are typically viewed as involved in the storage or production process and attempting by futures market transactions to avoid price risk associated with holdings of the underlying commodity.
Abstract: Hedgers are an integral element of most models of futures markets. They are typically viewed as involved in the storage or production process and attempting by futures market transactions to avoid price risk associated with holdings of the underlying commodity. Speculators accept the risk and receive compensation whose size is in considerable dispute. (Keynes [16], Telser [24], Cootner [6], Dusak [8]). This “insurance” view of hedging is sometimes expanded to allow for “discretionary” or “selective” hedging which tends to arise when expectations differ across individuals. Narrow models of hedging in the commodities market (Johnson [14], Heifner [11], Peck [19]), in the foreign exchange market (Ethier [9]), and in the bank loan market (Pyle [20]) as well as more general models of the determination of spot and futures prices that incorporate hedging (Stein [22]) have preceded or ignored the theory of equilibrium asset prices (Sharpe [21], Lintner [17]). On the other hand, recent models of the valuation of futures contrasts in capital market equilibrium have not considered the role of hedgers (Grauer and Litzenberger [10]).
108 citations
11 Feb 2011
TL;DR: In this paper, Aguiar et al. developed a model of international trade in which international trade depresses real exchange rate volatility and exchange-rate volatility impacts trade in products differently according to their degree of differentiation.
Abstract: We develop a model of international trade in which international trade depresses real exchange rate volatility and exchange rate volatility impacts trade in products differently according to their degree of differentiation. In particular, commodities are less affected by exchange rate volatility than more highly differentiated products. These insights allow us to simultaneously identify both channels of causation, thereby structurally addressing one of the main shortcomings of the existing empirical literature on the effects of exchange rate volatility on trade — the failure to correct for reverse causality. Using disaggregate trade data for a large number of countries for the period 1970-1997 we find strong results supporting the prediction that trade dampens exchange rate volatility. We find that once we address the reverse-causality problem, the large effects of exchange rate volatility on trade found in some previous literature are greatly reduced. In particular, the estimated effect of currency unions on trade is reduced from 300 percent to be between 10 and 25 percent. ∗Thanks are due to Mark Aguiar, Guillermo Calvo, Robert Feenstra, Erik Hurst, Silvana Tenreyro, Shang-Jin Wei, Kei-Mu Yi, and participants at seminars at Chicago GSB, Federal Reserve System Committee Meeting, LACEA Conference 2003, NBER, Minnesota, RIN Conference 2003, and Wisconsin for helpful suggestions. Any errors are our own.
108 citations