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35 9 credit suisse 305 10 bnp paribas 226 foreign

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Unformatted text preview: in the foreign exchange market are dominated by commercial and investment banks. – Inter­bank transactions of deposits in foreign currencies occur in amounts $1 million or more per transaction. – Central banks sometimes intervene, but the direct effects of their transactions are small and transitory in many countries. Top 10 currency traders % of overall volume, May 2009 Rank Name Market Share 1 Deutsche Bank 20.96% 2 UBS AG 14.58% 3 Barclays Capital 10.45% 4 Royal Bank of Scotland 8.19% 5 Citi 7.32% 6 JPMorgan 5.43% 7 HSBC 4.09% 8 Goldman Sachs 3.35% 9 Credit Suisse 3.05% 10 BNP Paribas 2.26% Foreign Exchange Markets (cont.) (cont.) Computer and telecommunications technology transmit information rapidly and have integrated markets. The integration of markets implies that there is no significant arbitrage between markets. – Arbitrage: buying at a low price and selling at a high price for a profit. If dollars are cheaper in New York than in Hong Kong, what do you predict will happen? When other factors are the same, people will buy assets in New York and stop buying them in Hong Kong, so that their price in New York rises and their price in Hong Kong falls, until they are equal in the two markets. Spot Rates and Forward Rates Spot Spot rates are exchange rates for currency exchanges “on the spot”, or when trading is executed in the present. Forward rates are exchange rates for currency exchanges that will occur at a future (“forward”) date. – Forward dates are typically 30, 90, 180, or...
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