April 2005 saw dynamic trade on the inter-bank foreign exchange market in China, with a robust month-on-month growth of 40 percent in average daily transaction volume, which reached US$1.282 billion.
According to the Shanghai-based national forex swap center, turnover of the US dollar, the Japanese yen, the HK dollar and the euro, amounted to US$28.215 billion for the 22 trading days in April.
The total included US$27.71 billion in trade. The average weighted price of the US dollar remained stable, ending the trading period at 8.2765 yuan against one dollar, balancing that for the end of the previous month, sources with the swap center said.
The weighted price of the euro ended the trading period at 10.66688 yuan against one euro, with the turnover down 230 percentage points month on month.
The turnover of the four foreign currencies on the Shanghai-based national forex swap center totaled US$91.397 billion in the first four months this year, with the daily transaction volume reaching US$1.115 billion.
Source: China Daily
Foreign exchange market
The foreign exchange market (forex, FX, or currency market) is a global decentralized market for the trading of currencies. This includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of volume of trading, it is by far the largest market in the world, followed by the Credit market. The main participants in this market are the larger international banks. Financial centres around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market does not determine the relative values of different currencies, but sets the current market price of the value of one currency as demanded against another.
The foreign exchange market works through financial institutions, and it operates on several levels. Behind the scenes banks turn to a smaller number of financial firms known as “dealers”, who are actively involved in large quantities of foreign exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the “interbank market”, although a few insurance companies and other kinds of financial firms are involved. Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars. Because of the sovereignty issue when involving two currencies, forex has little (if any) supervisory entity regulating its actions.
The foreign exchange market assists international trade and investments by enabling currency conversion. For example, it permits a business in the United States to import goods from European Union member states, especially Eurozone members, and pay Euros, even though its income is in United States dollars. It also supports direct speculation and evaluation relative to the value of currencies, and the carry trade, speculation based on the interest rate differential between two currencies.
In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying with some quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world’s major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system.
The foreign exchange market is unique because of the following characteristics:
- its huge trading volume representing the largest asset class in the world leading to high liquidity;
- its geographical dispersion;
- its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);
- the variety of factors that affect exchange rates;
- the low margins of relative profit compared with other markets of fixed income; and
- the use of leverage to enhance profit and loss margins and with respect to account size.
As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks.
According to the Bank for International Settlements, the preliminary global results from the 2016 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $5.1 trillion per day in April 2016. This is down from $5.4 trillion in April 2013 but up from $4.0 trillion in April 2010. Foreign exchange swaps were the most actively traded instruments in April 2016, at $2.4 trillion per day, followed by spot trading at $1.7 trillion. According to the Bank for International Settlements, as of April 2016, average daily turnover in global foreign exchange markets is estimated at $5.09 trillion, a decline of approximately 5% from the $5.355 trillion daily volume as of April 2013. Some firms specializing on the foreign exchange market had put the average daily turnover in excess of US$4 trillion. The $5.09 trillion break-down is as follows:
- $1.654 trillion in spot transactions
- $700 billion in outright forwards
- $2.383 trillion in foreign exchange swaps
- $96 billion currency swaps
- $254 billion in options and other products
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