Thursday, January 1, 2009

The Role Of The Commercial Banks In World Currency Trading:


World currency trading is no longer just a matter of banks exchanging currencies amongst themselves and now involves a variety of different players,

including specialist Forex brokerage firms, with very diverse reasons for trading in currencies. For example, some players will have to exchange currencies to buy goods and services overseas, while others will simply wish to earn short term profits from exchange rate movements or to influence currency exchange rates for one reason or another.

Whatever reason a player has for being in the market, this diverse group of traders influences supply and demand within the market and so alters the exchange rates at any given moment in time. It is important therefore to understand who the key players are and here we are going to look at one of the most important players - the commercial and investment banks.
Commercial and investment banks operate within what is known as the InterBank market which accounts for by far the greatest proportion of all trading, whether commercial or speculative in nature.
The InterBank market is composed solely of commercial and investment banks buying and selling currencies between themselves. Strict trading relationships are established between the InterBank member banks and lines of credit are established between individual banks before they are permitted to trade.
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