Foreign Exchange Market

The foreign exchange market (forex, FX, or currency

market) is a global decentralized market for the trading of

currencies. The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock,

with the exception of weekends.

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Electronic Broking Services (EBS) and Reuters 3000 Xtra are two main interbank FX trading platforms. The foreign exchange market determines the relative values of different currencies.

Structure of Foreign Exchange Market

Characteristics of FX Market
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 20:00 GMT on Sunday until 22:00 GMT Friday; 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.

Market size and liquidity

According to the Bank for International Settlements, as

of April 2010, average daily turnover in global

foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had

put the average daily turnover in excess of US$4

trillion

Market size and liquidity

Participants of FX Market
Commercial companies

Central banks
Foreign exchange fixing

Hedge funds as speculators

Investment management firms Retail foreign exchange traders Non-bank foreign exchange companies Money transfer/remittance companies and bureaux de change

Determinants of exchange rates

Financial instruments
There are many types of instruments and products of FX market to satisfy different needs of the people. Those are as followsSpot

Forward
Swap

Future
Option

FX market of Canada

Introduction
FX markets are central to the financial system, providing a means for funding foreign currency obligations, for hedging FX risks and for other services that enhance financial system efficiency. Canada is the 11th largest FX market by average

daily volume and the CAD is the 7th most traded currency in
the world. Canadian dollar transactions executed in Canada account for about 25% of global CAD turnover. Canadian banks are the largest liquidity providers in Canada though foreign banks are increasing their penetration into this area.

Size of Fx market of Canada

The market size of the FX market of Canada

Percentage Share by FX Product Type

According to Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in 2007.

Market Structure of Canada

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Note: D=dealer, C=client, VB=voice broker, EB=electronic broker, PB=prime broker, MBT = multibank trading system, SBT=single-banktrading system, RA=retail aggregator. Solid lines represent voice execution methods. Dashed lines represent electronic execution methods

Participants of The FX market of Canada

The participants of foreign exchange market of Canada are as follows-

Products of Canadian FX Market

The Canadian FX market has following products and instruments to meet the needs of customers. Those are1) Spot FX 2) Cross-currency swap 3) FX swap 4) Outright forward 5) FX options

Strengths of Canadian FX Market

According to CFEC report -2010 Canadian FX market has following strengths Product simplicity and transparency Large number of counterparties Credit risk mitigation structures Automation CLS settlement Self- regulation

Weakness of Canadian FX Market

According to CFEC report -2010 Canadian FX market has following weakness Limited liquidity in some markets Settlement risk for non-CLS currencies and nonCLS counterparties Concentrated liquidity providers Lack of standardization in some peripheral markets Non-spot FX reliant on other markets

Eurocurrency market

Definition of Eurocurrency Market

Financial instruments deposited or traded in a country that are denominated in currencies of other countries are called Eurocurrency (or Eurodollars).

Introduction
Eurocurrency markets are defined as banking

markets which involve short-term borrowing and

lending conducted outside of the legal jurisdiction

of the authorities of the currency that is used. For

example, Eurodollar deposits are dollar deposits

held in London and Paris. The Eurocurrency

market has two sides to it; the receipt of deposits and the loaning out of those deposits.

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By far the most important Eurocurrency is the

Eurodollar

which

currently

accounts

for

approximately 6065% of all Eurocurrency

activity, followed by the Euroeuro, Eurofrancs

(Swiss), Eurosterling and Euroyen.

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Eurocurrency and Eurobond markets are in many ways a phenomenon of the increasingly open world trading system. There is no reason why borrowing and lending in a given currency needs be carried out exclusively in the particular country that issues the currency

Characteristics of Eurocurrency Market

The Eurocurrency market has some unique characteristics that differentiate it from it from other markets.

Canadian Eurocurrency Market