Snapshot of the

Philippine
Foreign
Exchange
Market
Foreign Exchange Market

– The foreign exchange market, also known as the Forex or

FX market, is the largest financial marker in the world.
– Foreign exchange traders and investors use a number of
instruments to take advantage of rising and falling
exchange rates. Basically, a foreign exchange instrument is
a standardized contract or security that has foreign
exchange as the underlying asset.
Available Foreign Exchange
Instruments
SPOT TRANSACTION
– This is where the most common foreign transactions can be done.
– A foreign exchange transaction in which each party promises to pay a certain
amount of currency to the other on the same day or within one or two days.
– Transactions at the Philippine Dealing System are based on prevailing foreign
exchange rate and vary from time to time.
– Any transaction that does not occur in the futures or forward market.
Foreign Exchange Forward Contracts
– currency forward contract is an agreement between two parties to exchange a
certain amount of a currency for another currency at a fixed exchange rate on a
fixed future date.

Swap Contracts
– this is a contract between two or more parties where the cash flows are
exchange in two different currencies based on an agreed notional amount and
maturity.
Size of Foreign Exchange
Market and Forex Reserves
– Philippine market maintains a floating exchange rate whereby market forces
primarily determine the rate of exchange.
– The foreign exchange market is unique for several reasons, mainly because of its
size. The largest trading centers are London, New York, Singapore and Tokyo.
– The reserves of the Philippines and other countries include their holdings of
foreign currencies and gold. These are the reserves of the central bank and the
treasury of the country, not the private sector.
– Philippine's foreign exchange reserves: % of GDP data is updated quarterly,
averaging 20.861% from June 2000 to June 2018, the data reached an all time
high of 30.107% in Sept 11 and a record of low 14.179%
As per BSP
Investors in the Foreign
Exchange Market
– Commercial banks are allowed to engage in foreign exchange transactions.
Most banks engaged in trading with their client’s and for their own banking
requirements.
– Mutual funds engaged in dollar denominated bonds.
– Foreign investors, trust departments and institutional and retail investors
engaged in foreign exchange transaction
– Individual investors, corporation and investment managers and hedge funds
are types of players who trade in forex.
 Who Trades Forex?
– Banks - The greatest volume of currency is traded in the interbank market.
This is where banks of all sizes trade currency with each other and through
electronic networks. Banks facilitate forex transactions for clients and
conduct speculative trades from their own trading desks.
– Central Banks – represent their nation's government, are extremely
important players in the forex market.
Open market operations and interest rate policies of central banks
influence currency rates to a very large extent.
A central bank is responsible for fixing the price of its native currency
on forex. This is the exchange rate regime by which its currency will trade in
the open market.
Trading in the foreign exchange
market
– Most transactions in foreign currency are done through the
Philippine Dealing System (PDS).
– Philippine Dealing System (PDS)- provides a platform for the
buyers and the sellers (banks) to meet with the provision of real
time weighted average rate and volume of trades for the peso.
– - PDS trading starts at 9 a.m and ends at 4 p.m.
– Prebon Philippines- like Banks can trade directly among each other
by posting their prices in the PDS System.
– Transaction are done either directly or through money brokers who are “mapped” in
the PDS system .
– BSP- defends the peso from speculative attacks , either directly or indirectly.
• in the former, the BSP intervenes by buying or selling foreign exchange in the market.
• in the latter, the BSP adjusts the regulation on allowable transaction and amount an individual may
purchase.

– Money Changers- are not participants in the PDS System. Theses outfits trade among
themselves for their foreign exchange requirements, also have the option to sell their
foreign exchange to banks.
– Non-members of PDS - the transactions of the money changers are not captured or
“mapped” in the foreign exchange trading platform.