abhishreshthaa
Abhijeet S
RETAIL MARKET (Secondary price maker )
It is the market in which travelers & tourists exchange one currency for another in the form of currency notes & traveler’s cheques. Total turnover & transaction size is very small. The bid-ask spread is large. The secondary price maker make foreign exchange prices but do not make a two way market .
Foreign currency brokers
Foreign currency brokers act as middlemen between two market makers. Their main function is to provide information to market making banks about prices at which there are firm buyers & sellers in a pair of currencies. The broker hunts around for an appropriate counterparty –another bank - & collects commission on conclusion of deal.
Banks may also use brokers to acquire information about the general state of the market even when they do not have a specific deal in mind. The important thing is brokers do not sell or buy on their own account.
Price takers
Price takers are those take the prices quoted by primary price makers & buy or sell currencies for their own purposes but do not make a market themselves. Large corporations are the price taker who use the foreign exchange market for a variety of purposes related to their operations. They do not take active positions in the market to profit from exchange rate fluctuations.
Central bank
Central bank of various countries (such as RBI in India) intervene in the market from time to time to attempt to move exchange rates in a particular direction.
In case of limited flexibility systems like EMS, these interventions are obligatory when interventions are reached. In other cases though there is no commitment to defend any particular rate, a central bank may still intervene to influence market sentiment.
It is the market in which travelers & tourists exchange one currency for another in the form of currency notes & traveler’s cheques. Total turnover & transaction size is very small. The bid-ask spread is large. The secondary price maker make foreign exchange prices but do not make a two way market .
Foreign currency brokers
Foreign currency brokers act as middlemen between two market makers. Their main function is to provide information to market making banks about prices at which there are firm buyers & sellers in a pair of currencies. The broker hunts around for an appropriate counterparty –another bank - & collects commission on conclusion of deal.
Banks may also use brokers to acquire information about the general state of the market even when they do not have a specific deal in mind. The important thing is brokers do not sell or buy on their own account.
Price takers
Price takers are those take the prices quoted by primary price makers & buy or sell currencies for their own purposes but do not make a market themselves. Large corporations are the price taker who use the foreign exchange market for a variety of purposes related to their operations. They do not take active positions in the market to profit from exchange rate fluctuations.
Central bank
Central bank of various countries (such as RBI in India) intervene in the market from time to time to attempt to move exchange rates in a particular direction.
In case of limited flexibility systems like EMS, these interventions are obligatory when interventions are reached. In other cases though there is no commitment to defend any particular rate, a central bank may still intervene to influence market sentiment.