The big commercial and investment banks are heavy traders on the foreign exchange, attracting a heavy volume of corporate traffic. When a large corporation needs to buy Euros, dollars etc to import goods, they approach the bank who, in turn, approaches the interbank system.
The Tobin tax was a concept suggested by top economist James Tobin as far back as 1972. Never implemented, it regularly raises its head whenever there’s an economic crisis.
Although the foreign exchange is thought of as a free market, it is based on a fixed parity, or fixed par system. However, underlying this are substantial holdings of international reserves, the size of which are determined by the country’s economy, and the permitted size of par fluctuations i.e. the fluctuations in the floating exchange …
Currently, future contracts account for only 7% of global foreign currency exchange. However, they have become popular in recent years. They are distinct from both forward and spot contracts, in that whole numbers are used, and all trading is done against the US dollar.
Many British companies deal exclusively in domestic trade. However, they can still be affected by fluctuations in the foreign exchange rate. The strength of the pound is directly influenced by fluctuations on the foreign exchange, and thus any trader can be affected by currency exchange rates.
Britain relies on low prices to export goods – this is linked to the value of the pound on the foreign exchange. If the pound is strong then the cost of imports from abroad will be low, but cost of exports will be high, deterring foreign buyers. If the pound is weak, i.e. has a …
To buy goods from other countries, we must first purchase the requisite amount of that country’s currency. Likewise, when they want to buy from us, they must do the same. This is the basis of foreign currency exchange.
The market in foreign currency is the largest in the world, with billions of dollars being bought and sold daily. Britain commands the world currency exchange market, with around 33% of all trading taking place from these shores. This is followed by the US at 17% and Japan, at 10%.
In order to invest in foreign countries, or purchase their goods and services, it is usually necessary to first purchase the foreign currency of the country you are dealing with. American dollars are accepted worldwide, and generally exporters prefer to be paid either in their own currency or US dollars – usually the latter. This …
The nickname for pound sterling and the US dollar is still “cable” – a throwback to the days when money transfers were made by international cable rather than the new fangled telephone.