The MVR began to develop rapidly in the 1970s. The impetus for the growth of its popularity was the revolutionary changes in determining the value of national currencies - the vast majority of world powers abandoned the fixed rate and opted for a floating one. This served as a signal to financial speculators - over time, the number of interested parties seeking to capitalize on differences in exchange rates only grew.

Now the key factor for determining the real value of currencies is the ratio of supply and demand. First of all, it depends on the direction of development of national economies and their main driving forces, including the development of the industrial complex, currency turnover in the national and global markets, unemployment rates and inflation rates, the degree of development of mining, annual volumes of trade with other countries.

Peculiarities

The MVR is unlike any other. The stock markets are based on highly specialized stock exchanges, where trading is carried out. At the MVR, the overwhelming majority of all financial transactions and transactions are carried out using telephone and computer communications, which are actively used by banking structures, brokers, dealing organizations, etc. This kind of "architecture" allows the MVR to operate around the clock for 5 days a week - trading on it starts from the stock exchange in New Zealand and then, in accordance with time zones, continues on the exchange markets of Asia, Europe and North America.

The main assets of the IVR are the currencies of the most economically developed world states. Traditionally, they include:

• Swiss frank;
• British pound;
• Euro;
• U.S;
• Japanese yen.

Functions

Experts identify the following main functions of the MVR:

• Fair regulation of the value of national currencies based on the real ratio of supply and demand for them.
• Providing a variety of tools for diversifying the deposits of the largest international companies, transnational banks and government reserves.
• Support for the most efficient communication between various national monetary institutions.
• Providing market participants with the opportunity to make a profit through the implementation of speculative transactions when exchange rates change.
• Implementation of effective mechanisms designed to protect foreign currency deposits.
• Providing MVR participants with the opportunity to implement operational international mutual settlements.

Members

• private traders. These are individuals or legal organizations that operate on the market through a private banking structure or brokerage agency. Their main tasks are the purchase of currency for private purposes and the receipt of income on speculative exchange.
• Currency exchanges. They are structural subdivisions of national exchanges. This nuance allows them to provide access to the MVR for traders and brokers. With the help of currency exchanges, at the direction of state institutions, the exchange rate is regulated.
• State banks. They manage all the foreign exchange reserves of their states. Responsible for buying the currencies of developed world powers.
• Brokers. They open access for traders to stock exchanges, and also carry out transactions on the MVR for a certain commission percentage.
• commercial banks. They specialize in conversion operations for their clients, as well as the implementation of speculative transactions in the market.
• Investment banks, various pension and insurance organizations. Enter the MVR to diversify and hedge cash reserves.
• international companies. Carry out operations with currency for settlements on export and import deliveries of their products.

Key Concepts

International currency market; conversion operations; spot market; spot rate; among; forward market; forward rate; hedging currency futures; currency options; speculative currency transactions; currency arbitrage; percentage arbitrage; euro banks; eurocurrencies; Eurocurrency market.

The essence of the international currency market

The international currency market is the largest financial market in the world and occupies an important place in ensuring the interaction between the components of the world market.

The foreign exchange market is a system of currency and organizational relations associated with conversion operations, international settlements, and the provision of foreign currency on loans under certain conditions.

The peculiarity of this market is that it:

§ intangible;

§ does not have a specific location, center;

§ the mechanism of its functioning - the exchange of the currency of one country for the currency of another country;

§ there is complete freedom to instantly open or close any position, the ability to trade 24 hours a day in online mode;

§ is an interbank market;

§ has a flexible system of trade organization and a flexible strategy of payment for the conclusion of the transaction;

§ is one of the most liquid markets due to the possibility of working with various currencies on it;

§ thanks to the process of telecommunications and informatics, it is global, that is, deployed on a global scale.

Direct connections between the main centers of currency trading (London, New York, Tokyo, Frankfurt, Singapore) using telephones, faxes and computers turn each of these centers into a part of a single world market that operates around the clock. Economic news, which appears at any time of the day, is transmitted around the world and causes an immediate reaction in the foreign exchange market. Of course, agreements are invested by oral agreement. If necessary, documents confirming the transaction are sent later. The decisive factor is the speed of obtaining the necessary information, since exchange rates change within seconds.

The main participants in the international currency market are commercial banks, corporations that are engaged in international trade, non-banking financial institutions (asset management firms, insurance companies *), central banks.

Commercial banks are the central element of the international currency market, since most of the transactions with currencies involve the exchange of bank deposits denominated in different currencies.

The main commodity of this market is foreign currency in various forms: foreign currency deposits, any financial claims denominated in foreign currency. Operations with foreign currency demand deposits prevail in the foreign exchange market.

Demand deposits are funds that are used in currency trading between banks operating in the foreign exchange market. Bank dealers hold termless deposits in foreign currency with correspondent banks located in countries where this foreign currency is national. A bank in any country may sell foreign currency by instructing foreign employees to transfer a demand deposit to the buyer. The purchase of currency is carried out in the same way. In this case, the seller transfers it to a bank located abroad, to the buyer's account. The currency transaction goes like this. For example, an American firm must pay 200,000 euros for the supply of goods to a German firm. The firm instructs its bank to debit its dollar account and pay this amount by transferring it to the supplier's account in a German bank. An American bank transfers from the account of an American firm to a debit of a German bank dollars at the cash exchange rate in exchange for a deposit in euros, which will be used to pay the German supplier.

The international foreign exchange market consists of many national foreign exchange markets. Operations on it are carried out on three levels.

1st level: retail trade. Operations in one national market, when the dealer bank interacts directly with customers.

2nd level: wholesale interbank trade. Operations in one national market, when two dealer banks interact through a foreign exchange broker.

3rd level: international trade. Operations between two or more national markets, when dealer banks in different countries interact with each other. Such transactions often include arbitrage transactions in two or three markets.

The arbitrage process, where market participants buy a currency whose value is falling and sell a currency whose value exceeds the exchange rate in other market centers, gives rise to the law of one price trend.

Depending on the level of organization of the foreign exchange market, exchange and pozabi-Rzhov foreign exchange markets are distinguished. The exchange market is represented by currency exchanges, and the over-the-counter market, which is also called the interbank market, is represented by banks, financial institutions, enterprises and organizations.

The functions of the exchange market are to determine the demand and supply of currency, establish exchange rates, predict their dynamics, determine reference exchange rates, as well as to form a certain strategy and tactics of the country's central bank regarding financial and credit policy and the system of currency regulation. On currency exchanges, both transactions of a current nature and forward transactions are concluded. In terms of volume, the exchange market is small, since it functions mainly as a national currency market (approximately 10% of all currency transactions are concluded).

The activity of the interbank market is directly related to the implementation of foreign exchange transactions. It accounts for about 90% of foreign exchange turnover.

Most foreign exchange transactions account for interbank trade. The exchange rates published in newspapers are interbank rates, i.e. rates that banks ask each other. Interbank "wholesale" rates are lower than "retail" rates for clients. The difference in bank income for the service rendered.

Transnational corporations to carry out operations in different countries buy the currency they need on the international currency market. The participation of central banks in operations on international currency markets is carried out in the form of foreign exchange interventions.

Any two currencies can be involved in foreign exchange transactions, but most interbank transactions are currency exchange transactions for the US dollar, which is considered the key currency. An important role in the international currency market is also played by the euro, the Japanese yen, the Swiss franc, and the British pound sterling. Demand for these currencies exists every second, unlike other currencies.

The international currency market operates with an extremely large money supply. Its volume exceeds 700 trillion dollars a year, and the daily turnover is more than 4 billion dollars, 20% of which falls on the Asian market, 40% on the European market and 40% on the American one.

In Ukraine, the cash foreign exchange market (buying and selling foreign currencies for hryvnia in dollar terms) tends to grow: in 1999 p. - 8063780000 dollars, in 2000 p. - 25159700000 dollars, which is a consequence of the growth of exports of goods and services.

By the nature of transactions, the foreign exchange market is divided into markets: spot, forward, swap, currency futures and options market.

2 International currency market and major world currencies

If we formulate as precise a definition as possible, then the international currency market FOREX (Foreign Exchange Market) is a set of operations for the purchase and sale of foreign currency, and the provision of loans on specific conditions (amount, exchange rate, interest rate) with execution on a certain date. The main participants in the foreign exchange market are: commercial banks, currency exchanges, central banks, firms engaged in foreign trade operations, investment funds, brokerage companies; direct participation in foreign exchange transactions of individuals is constantly growing.

FOREX is the largest market in the world, it accounts for up to 90% of the entire world capital market in terms of volume. Thousands of participants in this market - banks, brokerage firms, investment funds, financial and insurance companies - buy and sell currency within 24 hours a day, making transactions within a few seconds anywhere in the world. United into a single global network by satellite communication channels using the most advanced computer systems, they create a turnover of foreign exchange funds, which in total exceeds 10 times the total annual gross, national product of all countries of the world per year (moreover, the figure is taken from a 5-year-old textbook) .

Why is it necessary to move such huge masses of money through electronic channels? Currency transactions provide economic links between participants in various markets located on different sides of state borders: interstate settlements, settlements between firms from different countries for goods and services supplied, foreign investment, international tourism and business trips. Without foreign exchange transactions, these essential types of economic activity could not exist. But the money that serves here as an instrument becomes a commodity itself, as the supply and demand for transactions with each currency in various business centers changes over time, and therefore the price of each currency changes, and changes quickly and in an unpredictable way.

The international monetary device today is based on the regime of floating exchange rates: the price of the currency is determined primarily by the market. Therefore, the exchange rate either rises (the currency rises in price), then falls down. This means that you can buy a currency cheaper and after a while sell it more expensive, while making a profit. The international monetary system has come a long way over the millennia of human history, but undoubtedly today the most interesting and previously unthinkable changes are taking place in it. Two major changes define the new face of the global monetary system:

a) money is now completely separated from any material carrier;

b) powerful information and telecommunications technologies have made it possible to combine the monetary systems of different countries into a single global financial system that does not recognize borders.

Previously, everything was quite simple and clear: "People are dying for the metal." And now money is not only not metal, but not even those green pieces of paper that warm the eyes. Real money that drives the destinies of people, pushes countries and peoples together, destroys empires and creates new ones, today this money is just numbers on computer screens. Whether this is good or not is not the subject of fundamental analysis, but the financial market of the planet is such today and we must learn to work on it.

The international currency market as we know it emerged after 1973, but its modern history began in the summer of 1944 in the American resort town of Bretton Woods. The outcome of the Second World War was no longer in doubt, and the allies took up the post-war financial structure of the planet. While the economies of all leading states after the war were to be in ruins or in the grip of military production, the US economy emerged from the war on the rise. And since the winners, the victims, and the vanquished needed food, fuel, raw materials and equipment, and only the American economy could provide all this in sufficient quantities, the question arose of how other countries would pay for this. After the war, they had little of what could be of interest to the United States; The United States already had the largest gold reserves, and many countries hardly had it at all. In any attempt to establish trade through currency exchange, the price of the dollar, due to the high demand for American goods, was bound to rise to such a level that all other currencies would depreciate and the purchase of American goods became impossible.

On the other hand, this could be considered a problem for anyone but the United States, but a sufficient number of people understood that this approach led to the Second World War. After the First World War, America washed its hands, leaving international responsibility to other countries. The world experienced a strong dollar hunger, the gold reserves of countries flowed into the United States, and other currencies depreciated. Natural but short-sighted protectionist decisions isolated the economies from each other, and economic nationalism easily turned into diplomatic relations and escalated into war.

To prevent the post-war collapse of currencies, the financial forum at Bretton Woods created a number of financial institutions, including the International Monetary Fund. originally represented by the combined currency resources, where all countries (but to the maximum extent the United States) contributed their share, and from where each country could take to maintain its currency. The US dollar had a fixed gold content ($35 per troy ounce), while other currencies were pegged to the dollar at a certain ratio (fixed exchange rates).

But the post-war demand for the dollar was above all expectations. Many countries sold their currencies to buy dollars to buy American goods. American exports far exceeded imports (the trade surplus was growing), and the world's dollar deficit was growing. IMF resources were not enough to borrow countries to support their currencies. The answer to these problems was the American Marshall Plan, according to which the European countries provided the United States with a list of material resources necessary for the recovery of their economies, and the United States transferred to them (not on loan) the amount of dollars sufficient to purchase the specified. These dollars prevented the devaluation of other currencies, contributed to a new growth of American exports, opening up new markets for it.

The American presence in all parts of the world through the cost of maintaining military bases, American private investment in the business of Europe (acquisition of European firms or participation in them), the activity of American tourists spending money around the world, gradually filled foreign banks with dollars in quantities greater than necessary. At the end of the 1950s, European business no longer needed the same amount of American goods, had more attractive investment opportunities than dollar deposits, and therefore did not want to hold excess dollars. At first, the US Treasury was ready to buy dollars, paying them with the established gold content, preventing the dollar from falling against other currencies. But the flow of gold from the United States led to a halving of the gold reserves in the early 60s. Foreign central banks also supported the dollar against national currencies for a long time, buying up surplus dollars offered by the population, private banks and businesses.

The system of fixed exchange rates lasted until the early 1970s. By this time, the US no longer had a favorable trade balance; other countries were selling more and more to America and buying less from it. Dollars that were disposed of abroad ended up in foreign central banks as a hopeless unclaimed cargo. For several years, the United States resisted the inevitable devaluation of the dollar and did not agree to the establishment of free floating exchange rates, but after a series of problems in the early 70s, they abandoned the gold content of the dollar, the rate of which has since been determined by market demand and supply (free floating - freely floating rate). By 1980, the price of gold rose to almost $750 per troy ounce (since the beginning of 1975, Americans have been legally able to purchase gold as an investment). In the late 70s, the dollar fell to its post-war low, and its subsequent history is a series of ups and downs.

All major world currencies are now in such a free-floating mode, when their price is determined by the market, depending on how much this currency is needed for the purchase of goods, investments and interstate settlements. Of course, this swimming is not completely free; each country has a central bank whose main task, in accordance with the law, is to ensure the stability of the national currency. The FOREX international currency market brings together all the many participants in currency exchange operations: individuals, firms, investment institutions, banks and central banks.

The main currencies that account for the bulk of all transactions in the FOREX market today are the US dollar (USD), euro (EUR), Japanese yen (JPY), Swiss franc (CHF) and British pound sterling (GBP). Prior to the advent of the euro currency, the German mark (DEM) had a large market share.

The US dollar (USD), as we have seen, became the world's leading currency after World War II. Today, the dollar is a universal means of payment in international business, a safe-haven currency in various financial and political crises in other countries, as well as an object of international investment, thanks to a large volume of highly reliable securities - long-term US government bonds. Confidence in the stability of the American economic and financial system, that all proceeds from government debt securities will be paid on time, not requisitioned, and not subject to unexpected taxes, attracts both private foreign investors and foreign governments to this market.

In recent years, the US stock market has shown unprecedented growth, attracting huge capital from foreign and domestic investors, which serves as an additional source of strength for the dollar. Since the mid-1980s, American stocks have become a better investment option than gold: stocks have risen, while the price of gold has fallen. In the period after 1993, American stocks have been growing so rapidly that not only independent experts, but also officials have repeatedly expressed fears that stock prices are too high and their fall could be too sharp and lead to a financial and economic crisis.

The dollar holds, according to various estimates, a share of 50 to 61 percent in the international reserves of central banks, amounting to up to $1 trillion. It is the generally accepted base currency when quoting other currencies. The dollar participates as one of the parties in 87% of all transactions in the FOREX market (as of October 1998). Of all Japanese yen exchanges, the US dollar accounted for 87%; for the German mark, this figure was 64%, and for the Canadian dollar - 98%.

To illustrate the recent history of the dollar, we present in Figure 2.1. dollar index chart. Due to the special position that the dollar occupies in the world market, it is customary to express the prices of all other currencies in relation to the dollar. The price of the yen is expressed as the number of yen that is given for one dollar; The price of a pound is expressed in terms of the number of dollars that one pound gives. But for the dollar, this means that it has as many prices as there are currencies, and when one of its prices rises, another can fall. To obtain an objective characterization of the price of the dollar, one can use the average exchange rate of the dollar against the main world currencies, taking into account the volume of international trade (the meaning of this index will be discussed in more detail in paragraph 3), which shows that the dollar is currently confidently justifying the statements of the American financial authorities that a strong dollar continues to be the backbone of US policy.

Figure 2.2 shows a graph of the main US stock index, the Dow Jones index, which shows the dynamics of the growth in stock prices of leading American industrial corporations. We will return to this chart later when we analyze the situation on the foreign exchange market in the summer of 1999.

Rice. 2.1 US dollar index chart

Rice. 2.2 Chart of the US stock index Dow Jones

Rice. 2.3 Japanese yen exchange rate chart

The Japanese yen (JPY) went through a difficult path from the post-war level of 360 yen to the dollar, determined by the American occupation administration, to the rate of about 80 yen to the dollar in 1995, after which its level dropped again significantly and again strengthened in the second half of 1998 .

The main feature of the financial situation in Japan today is extremely low short-term interest rates; practically they are today supported by the Bank of Japan at zero level. Therefore, very large volumes of savings and funds of pension funds and other investors were invested in foreign securities, primarily in US government bonds and European assets. Significantly yielding to the dollar as a reserve currency and an instrument of international settlements, the yen is nevertheless one of the main currencies in the international financial market.

British pound (GBP). The British pound was the world's leading currency until the First World War; having significantly weakened its positions in the interwar period, it finally lost its leadership to the dollar after the Second World War, which was caused by natural problems in the economy affected by the war, as well as undermining confidence in the currency due to massive counterfeiting sabotage against it by Germany during the war.

Rice. 2.4 British pound chart

Up to 50% of transactions involving the pound take place in the London market. In the global market, it occupies about 14%. Almost all of this volume accounted for the dollar and the German mark. New York banks practically stop quoting the GBP at noon. The pound is very sensitive to data on the labor market and inflation in England, as well as to oil prices (in textbooks on the foreign exchange market, it was even characterized as petrocurrency). In the comments of events on the FOREX market, the pound is referred to either as a cable or a pound. The first name has remained since the time when the most operational data received in Europe from America were telegrams transmitted over the transatlantic submarine cable. Cable is used, as a rule, in the GBP quote to USD, and the pound was used in pound quotes to the German mark.

Swiss franc (CIS). The volume of transactions with the participation of the Swiss franc is significantly less than with other currencies considered. In relation to the German mark, he often played the role of a safe-haven currency (for example, in the event of crises in Russia). In previous years, the franc fluctuated more than the German mark; but lately this has not been the case. The function of the franc as a safe-haven currency was greatly reduced in 1999 due to the military conflict in the Balkans.

Rice. 2.5 Chart of the Swiss franc

With the advent of the euro, the volatility (volatility) of the franc against the euro became much less than the volatility of the franc against the German mark. The Swiss National Bank (SNB) is pursuing a policy aimed at coordinating financial conditions in Switzerland and the Euro-region; specifically, on the day the European Central Bank cut interest rates this spring, the SNB announced a cut in its interest rate 20 minutes later.

While the majority of exchanges involve the dollar, some non-dollar markets are also very active. About 98% of the total volume of the non-dollar market used to fall on the German mark. After the introduction of the euro, volumes in many markets declined and have not yet fully recovered.

The Deutsche Mark (DEM) was second only to the dollar in terms of its share in the world's foreign exchange reserves (about 25%). With regard to the stability of the exchange rate, the mark was strongly influenced by socio-political factors in Russia, with which Germany is most closely connected by economic and political relations, and this influence was transferred to the new euro currency, since Germany represents a significant part of the economy of eleven states that have united their currency systems.

The new currency euro (EUR), which appeared on January 1, 1999, united 11 European nations into the most powerful economic bloc in the world, which accounts for almost a fifth of the global output of goods and services and world trade. The Euro-region (“Euro-area”) includes Austria, Belgium, Germany, Ireland, Spain, Italy, Luxembourg, the Netherlands, Portugal, Finland and France, covering an area of ​​2,365,000 sq. km. with a population of 291 million people (for comparison - in the US 269 million, in Japan - 126).

Rice. 2.6 Chart of the common European currency euro (before January 1, 1999, the ECU chart is shown)

The total gross domestic product (GDP) in 1997 was 5.55 trillion ECU (ECU-European Currency Unit), or 6.51 trillion US dollars, while the US GDP was 6.85 trillion ECU, and Japan - 3 .71 trillion. Exports account for 10% of the euro-region's GDP. In 1997, total exports were 25% higher than those of the United States and twice those of Japan. Germany accounts for up to 30% of the European economy; Together, Germany, France and Italy make up about 70% of the economy of the euro-region.

The average consumer price inflation in October 1998 was 1.0%; the main interest rates were reduced by 11 European central banks to 3.0% in autumn 1998. The average unemployment rate was 10.8% by the beginning of 1999, varying from 18.2% in Spain to 2.2% in Luxembourg.

The Danish krone and the Greek drachma, which are the closest candidates for joining the euro, are regulated from 01.01.99 by the ERM-2 mechanism. This means that the central exchange rates of these currencies to the euro are determined: 7.46038 Danish crowns / euro and 353.109 Greek drachma / euro, and the boundaries of the allowable range of exchange rate changes for the crown form a corridor with a width of 2.25% of the central rate, and for the drachma the width of the corridor is 15 %. In the event that the currency leaves the currency band, the relevant national Central Bank must undertake foreign exchange intervention to adjust the exchange rate. For example, the kroon intervention range is: buy 7.29252, sell 7.62824. The European Central Bank has an obligation to help the central banks of Denmark and Greece maintain rates within given ranges in the event of speculative attacks against currencies.

The creation of a single European currency is by far the greatest financial experiment in human history. None of the previous attempts to create any significant financial union was successful. The euro is now also viewed by many as an experiment, the outcome of which will not necessarily be a success. Throughout the first half of 1999, the exchange rate was steadily declining, which some see as signs of distrust in the new currency, while others see the monetary policy effectively pursued by a single European Central Bank, since a low exchange rate plays into the hands of European exporters, significantly increasing the competitiveness of their goods on world markets. markets.

The path of European states to the unification of monetary systems was long and not easy, not all countries could withstand the conditions formulated for unification, the composition of the participants changed. But for several years, a synthetic ecu currency (ECU) made up of European currencies existed and was recognized in the world (its exchange rate on December 31, 1998 became the euro exchange rate); the persistent work of the leaders of a number of European states, primarily Germany, France, Italy, eventually led to the launch of a new currency.

For a better understanding of the processes taking place in the euro-region, it is useful to remember those macroeconomic guidelines (embedded in the Maastricht Treaty, which determined the conditions for convergence), with which the European states approached the unification of their monetary systems.

1. Price stability: the average inflation rate for the previous year should not exceed by more than 1.5% the inflation rates of the three of the merging countries with the lowest inflation rates.

2. The stability of the financial position of the state, which means the absence of a significant budget deficit, in particular, a) the ratio of the planned or actual state deficit to the gross domestic product (GDP) will not exceed 3%, or this ratio should consistently decrease, approaching the specified level , significant deviations are permissible only short-term; b) the ratio of public debt to GDP should not exceed 60%. or it should consistently decrease, tending to the specified level.

3. Criterion of convergence of interest rates, meaning. that during the previous year, the average long-term interest rates (long-term rates) should not exceed by more than 2% the interest rates of the three states with the greatest price stability. Interest rates are measured on the basis of long-term government bonds or similar foam papers, subject to differences in national definitions.

4. The condition of participation in the European Exchange Mechanism (ERM) for two years before the transition to the EURO currency, in particular, during this period there should be no devaluation of the cross-rate of the currency against the currencies of other member states.

The table below (Table 2.1) contains data on the status of the participating countries as of July 1998, when the final decision on the membership of the monetary union was made.

Table 2.1

The following table (Table 2.2) presents the values ​​of the cross-rates of eleven currencies against the euro as of December 31, 1998.

Table 2.2

We will also give the standard country codes used in information systems to designate various indicators.

Table 2.3

(Materials are given on the basis of: Likhovidov V.N. Fundamental analysis of world currency markets: methods of forecasting and decision making. - Vladivostok - 1999)

Option Futures Forward Swap Currency market Forex Spot capital market(Stock dealing) Money market Treasury bill, agency bill, municipal bill,
commercial, banking Certificate of deposit Savings certificate REPO agreement Mutual investment fund (PIF) Market of precious (banking) metals Real estate market(Realtor)

In the foreign exchange market, the interests of investors, sellers and buyers of currency values ​​are coordinated. Western economists characterize the foreign exchange market from an organizational and technical point of view as an aggregate network of modern means of communication connecting national and foreign banks and brokerage firms.

Story

Prerequisites for the development and establishment of the modern foreign exchange market

Currency exchange operations existed in the ancient world and in the Middle Ages. However, modern currency markets emerged in the 19th century. The main prerequisites that contributed to the formation of the foreign exchange market in the modern sense were the following:

• wide development of various international economic relations;
• the creation of a world monetary system based on the organization and regulation of foreign exchange relations, fixed by interstate agreements;
• wide distribution of credit funds for international settlements and payments;
• enlargement and centralization of bank capital, wide development of correspondent relations between banks of different countries, including the maintenance of correspondent accounts in foreign currency;
• the development of information technologies and means of communication: telegraph, telephone, telex, which simplified contacts between foreign exchange markets and reduced the time to receive information about completed transactions.

Developing national currency markets and their interaction formed a single world currency market, in which the leading currencies began to circulate freely in the world's financial centers.

Types of foreign exchange transactions, their evolution

Historically, two main methods of payment were distinguished in international circulation: tracing and remittance, which were used in international circulation before the First World War and partially (to a lesser extent) between the First and Second World Wars.

The term "tracing" is associated with the use of a bill of exchange - drafts. When paying by this method, the creditor issues a bill of exchange for the debtor in his currency (for example, a creditor in London presents a debtor in Chicago with a demand for payment of a debt in dollars) and sells it on his foreign exchange market at the buyer's bank rate. Thus, when tracing, the creditor acts as an active party, he sells a bill in the currency of the debtor in his foreign exchange market.

When remitting, the debtor acts as an active person: he buys the currency of the creditor in his foreign exchange market at the rate of the seller.

In the early years after World War II until the end of the 1950s, when foreign exchange restrictions were in place, spot (with immediate delivery of currency) and "forward" forward transactions prevailed in industrialized countries.

Since the 1970s, futures and options currency transactions began to develop. This kind of transactions provided new opportunities for all participants in the foreign exchange market, both for currency speculators and for hedgers, that is, to protect against currency risks and receive speculative profits. Banks began to make foreign exchange transactions in combination with interest rate swaps.

The main characteristics of modern world currency markets

Modern world currency markets are characterized by the following main features.

1. The international nature of the currency markets based on the globalization of world economic relations, the widespread use of electronic means of communication for transactions and settlements.
2. The continuous, non-stop nature of transactions during the day alternately in all parts of the world.
3. Unified nature of foreign exchange transactions.
4. The use of operations in the foreign exchange market for the purpose of protection against foreign exchange and credit risks through hedging.
5. A huge share of speculative and arbitrage transactions, which are many times greater than foreign exchange transactions associated with commercial transactions. The number of currency speculators has increased dramatically and includes not only banks and financial and industrial groups, TNCs, but also many other participants, including individuals and legal entities.
6. Volatility of exchange rates, which does not always depend on fundamental economic factors.

The modern foreign exchange market performs the following functions:

1. Ensuring the timeliness of international payments.
2. Creation of opportunities for protection against currency and credit risks.
3. Ensuring the interconnection of world currency, credit and financial markets.
4. Creation of opportunities for diversification of foreign exchange reserves of the state, banks, enterprises.
5. Market regulation of exchange rates based on the interaction of demand and supply of currencies.
6. The possibility of implementing monetary policy as part of the state economic policy. The possibility of implementing coordinated actions of different states in order to achieve the goals of macroeconomic policy within the framework of interstate agreements.
7. Providing opportunities for foreign exchange market participants to receive speculative profits through arbitrage transactions.

In terms of the volume of operations, the foreign exchange market is significantly superior to other segments of the financial market. Thus, the daily volume of transactions in 1997 in the stock market was estimated at $100-150 billion, in the bond market - $500-700 billion, and in the foreign exchange market - $1.4 trillion (against $205 billion in 1986). Currently, the volume of foreign exchange transactions is about 4 trillion dollars a day.

Currency market instruments

In the modern foreign exchange market, the following types of transactions can be distinguished.

Currency transactions with immediate delivery ("spot")

With the help of the "spot" operation, banks meet the needs of their clients in foreign currency by transferring capital, including "hot" money, from one currency to another, and carry out arbitrage and speculative operations.

Forward transactions with foreign currency

Forward currency transactions include forward, futures and option transactions, as well as currency swaps.

Forward transactions

Options

Currency swaps

Currency swap swap- exchange, exchange) is a transaction that combines the purchase and sale of two currencies on the terms of immediate delivery with a simultaneous counter-transaction for a certain period with the same currencies. Each party is both a seller and a buyer of a certain amount of currency. A currency swap is not a standard exchange contract.

For swap transactions, the cash transaction is carried out at the spot rate, which in the counter transaction (terms) is adjusted to take into account the premium or discount, depending on the dynamics of the exchange rate. At the same time, the client saves on margin - the difference between the rates of the seller and the buyer for a cash transaction. Swap operations are convenient for banks: they do not create an open position (the purchase is covered by the sale), they temporarily provide the necessary currency without the risk associated with a change in its exchange rate.

Foreign exchange market participants

The main participants in the foreign exchange market are:

• Central banks. Their function is to manage the state's foreign exchange reserves and ensure the stability of the exchange rate. To implement these tasks, both direct foreign exchange interventions and indirect influence can be carried out - through the regulation of the level of the refinancing rate, reserve standards, etc.
• Commercial banks. They carry out the bulk of foreign exchange transactions. Other market participants hold accounts in banks and carry out conversion and deposit-credit operations necessary for their purposes through them. Banks concentrate the total needs of the commodity and stock markets in currency exchange, as well as in attracting / placing funds. In addition to satisfying customer requests, banks can conduct operations on their own at their own expense. Ultimately, the international currency exchange market (forex) is a market for interbank transactions. The largest influence is exerted by large international banks, whose daily volume of transactions reaches billions of dollars. The volume of one interbank contract with real delivery of currency on the second business day (spot market) is usually about 5 million US dollars or their equivalent. The cost of one conversion payment is from 60 to 300 dollars. In addition, you have to bear the costs of up to 6 thousand dollars per month for the interbank information and trading terminal. Because of these conditions, Forex does not carry out conversions of small amounts. To do this, it is cheaper to turn to financial intermediaries (a bank or a currency broker) who will convert for a certain percentage of the transaction amount. With a large number of clients and multidirectional orders, a situation of internal clearing regularly arises, when the intermediary does not need to contact a third-party counterparty (there is no need to carry out a real conversion through Forex). But intermediaries always receive their commissions from customers. Due to the fact that not all client orders get to Forex, intermediaries can offer clients commissions that are significantly lower than the cost of direct Forex operations. At the same time, if intermediaries are eliminated, the conversion cost for the end client will inevitably increase.
• Firms engaged in foreign trade operations. Total applications from importers form a stable demand for foreign currency, and from exporters - its supply, including in the form of foreign currency deposits (temporarily free balances in foreign currency accounts). As a rule, firms do not have direct access to the foreign exchange market and conduct conversion and deposit operations through commercial banks.
• International investment companies, pension and hedge funds, insurance companies. Their main task is diversified asset portfolio management, which is achieved by placing funds in securities of governments and corporations of various countries. In dealer slang, they are simply called funds. funds). This type can also include large transnational corporations that carry out foreign production investments: the creation of branches, joint ventures, etc.
• Currency exchanges. In a number of countries there are national currency exchanges, whose functions include the exchange of currencies for legal entities and the formation of a market exchange rate. The state usually actively regulates the level of the exchange rate, taking advantage of the compactness of the local exchange market.
• Currency brokers. Their function is to bring together the buyer and seller of foreign currency and to carry out a conversion or loan and deposit operation between them. For their mediation, brokerage firms charge a brokerage commission as a percentage of the transaction amount. But the amount of this commission is often less than the difference between the bank's loan interest and the bank deposit rate. Banks can also perform this function. In this case, they do not issue a loan and do not bear the corresponding risks.
• Private individuals. Citizens carry out a wide range of operations, each of which is small, but in total they can form a significant additional supply or demand: payment for foreign tourism; money transfers of wages, pensions, fees; purchase/sale of cash currency as a store of value; speculative foreign exchange transactions.

Notes

Literature

• D. Yu. Piskulov " Theory and practice of currency dealing».

see also

International Monetary Systems and Exchange Rate Regimes
Monometallism / Bimetallism
Fixed / floating rate
International currency systems
International financial organizations

Currency market(in English currency market, money market) is:

• the scope of economic relations between market participants in the implementation of conversion and credit and deposit operations in foreign currencies;
• a financial center where transactions for the purchase and sale of currencies are concentrated and based on supply and demand for them.
• a set of authorized banks, investment companies, brokerage houses, stock exchanges, foreign banks that carry out foreign exchange transactions;
• a set of communication systems that interconnect banks of different countries that carry out international currency transactions.

Functions of the foreign exchange market

1. Insurance against;
2. Diversification;
3. Implementation of foreign exchange intervention;
4. Reception of profit of their participants in the form of a difference in exchange rates.

Participants in the currency markets

• Central banks. Their function is to manage the state's foreign exchange reserves and ensure the stability of the exchange rate. To implement these tasks, both direct foreign exchange interventions and indirect influence can be carried out - through regulation of the level of the refinancing rate, reserve requirements, etc.
• Commercial banks. They carry out the bulk of foreign exchange transactions. Other market participants hold accounts in banks and carry out conversion and deposit-credit operations necessary for their purposes through them. Banks concentrate the total needs of the commodity and stock markets in currency exchange, as well as in attracting / placing funds. In addition to satisfying customer requests, banks can conduct operations on their own at their own expense.
• Firms engaged in foreign trade operations. Total applications from importers form a stable demand for foreign currency, and from exporters - its supply, including in the form of foreign currency deposits (temporarily free balances in foreign currency accounts). As a rule, firms do not have direct access to the foreign exchange market and conduct conversion and deposit operations through commercial banks.
• International investment companies, pension and hedge funds, insurance companies. Their main task is diversified asset portfolio management, which is achieved by placing funds in securities of governments and corporations of various countries. In dealer slang, they are simply called funds. This type can also include large transnational corporations that carry out foreign production investments: the creation of branches, joint ventures, etc.
• . In a number of countries there are national currency exchanges, whose functions include the exchange of currencies for legal entities and the formation of a market exchange rate. The state usually actively regulates the level of the exchange rate, taking advantage of the compactness of the local exchange market.
• Currency brokers. Their function is to bring together the buyer and seller of foreign currency and to carry out a conversion or loan and deposit operation between them. For their mediation, brokerage firms charge a brokerage commission as a percentage of the transaction amount. But the amount of this commission is often less than the difference between the bank's loan interest and the bank deposit rate. Banks can also perform this function. In this case, they do not issue a loan and do not bear the corresponding risks.
• Private individuals. Citizens carry out a wide range of operations, each of which is small, but in total they can form a significant additional supply or demand: payment for foreign tourism; money transfers of wages, pensions, fees; purchase/sale of cash currency as a store of value; speculative foreign exchange transactions.

Classification of foreign exchange markets

Foreign exchange markets can be classified according to a number of criteria: by scope, in relation to foreign exchange restrictions, by types of foreign exchange resources, by the degree of organization.

By area of ​​distribution

International currency market covers the currency markets of all countries of the world. The international currency market is understood as a chain of world regional currency markets closely interconnected by a system of cable and satellite communications. There is an overflow of funds between them, depending on the current information and forecasts of the leading market participants regarding the possible position of individual currencies. It is international.

Domestic foreign exchange market- this is the foreign exchange market of one state, i.e. market within a given country. The domestic foreign exchange market consists of domestic regional markets. These include currency markets centered on interbank currency exchanges.

In relation to currency restrictions

Currency restrictions- this is a system of state measures (administrative, legislative, economic, organizational) to establish the procedure for conducting transactions with currency values. Currency restrictions include measures for targeted regulation of payments and transfers of national and foreign currency abroad.

A foreign exchange market with foreign exchange restrictions is called a non-free market, and in the absence of them, a free foreign exchange market.

By types of applied exchange rates

Market with one mode- this is a foreign exchange market with free exchange rates, i.e. with floating exchange rates, the quotation of which is established at exchange auctions. For example, the official exchange rate of the ruble is set using fixing.

In Russia, fixing is carried out by the Central Bank of Russia on and represents the determination of the US dollar exchange rate against the ruble.

The fixing rate is the unified rate of the Central Bank of Russia. Through it, using information about the cross-rates of the Reuters agency, he displays the ruble exchange rate against other currencies. Currency fixing occurs twice a week. On the day of currency fixing, the Central Bank of Russia announces the exchange rates of the leading freely convertible currencies against the ruble through a publication in the media.

Currency market with dual mode- This is a market with the simultaneous use of a fixed and floating exchange rate. The introduction of a dual currency market is used by the state as a measure to regulate the movement of capital between the national and international loan capital markets.

This measure is designed to limit and control the influence of the international loan capital market on the economy of a given state. For example, currently Vnesheconombank of the Russian Federation for foreign investments on blocked accounts, for which settlements have not yet been fully completed, applies a fixed ruble exchange rate, namely the commercial exchange rate set by the Central Bank of Russia.

By degree of organization

Exchange currency market- This is an organized market, which is represented by a currency exchange. Currency exchange - an enterprise that organizes trading in currency and securities in foreign currency. The exchange is not a commercial enterprise. Its main function is not to receive high profits, but to mobilize temporarily free funds through the sale of foreign currency and securities in foreign currency and to establish the exchange rate, i.e. its market value. The exchange currency market has a number of advantages: it is the cheapest source of currency and foreign exchange funds; orders put up for exchange auctions have absolute liquidity.

The liquidity of currency and securities in foreign currency means their ability to quickly and without loss in price turn into the national currency.

OTC foreign exchange market is organized by dealers who may or may not be members of the currency exchange and conduct it by telephone, telefax, computer networks.

The exchange and over-the-counter markets contradict each other to a certain extent and at the same time complement each other. This is due to the fact that, while performing the general function of trading in currency and circulation of securities in foreign currency, they use various methods and forms of selling currency and securities in foreign currency.

The advantages of the over-the-counter foreign exchange market are:

Sufficiently low cost of expenses for currency exchange operations. Bank dealers often use face-to-face foreign exchange auctions on the stock exchange to reduce their own costs for foreign exchange conversion by concluding agreements on the sale and purchase of currency at the exchange rate before the start of trading on the stock exchange. On the exchange, commissions are charged from bidders, the amount of which is directly dependent on the amount of currency and ruble resources sold. In addition, the law establishes a tax on exchange transactions. In the over-the-counter market for an authorized bank, after the counterparty to the transaction has been found, the currency conversion operation is carried out practically free of charge;

Higher settlement speed than when trading on the currency exchange. This is primarily due to the fact that the over-the-counter currency market allows you to conduct transactions throughout the entire trading day, and not at a strictly defined time of the exchange session.

When classifying foreign exchange markets, it is necessary to single out the markets for eurocurrencies, eurodeposits, eurocredits, as well as "black" and "gray" markets.

Eurocurrency market- This is the international currency market of Western European countries, where transactions are carried out in the currencies of these countries.

The functioning of the eurocurrency market is associated with the use of currencies in non-cash deposit and loan transactions outside the countries issuing these currencies.

Eurobond market expresses for debt obligations with long-term loans in eurocurrencies, issued in the form of bonds of borrowers. The bond contains data on the amount of debt, the conditions and terms of its repayment, the procedure for obtaining interest in accordance with coupons. A coupon is a part of a bond certificate that, when separated from it, gives the owner the right to receive interest.

Eurodeposit market expresses stable financial relations on the formation of deposits in foreign currency in commercial banks of foreign countries at the expense of funds circulating on the Eurocurrency market.

Eurocredit market expresses stable credit relations and financial relations for the provision of international loans in Eurocurrency by commercial banks of foreign countries.