Foreign exchange

Foreign exchange - is a full complex of conversion and deposit operations in foreign currency, executed between the foreign exchange market participants.

Foreign exchanges can be classified by following features:

Due to the transaction type. There are two market types: a global market of conversion operations (for ex., euro/dollar, dollar/yen) and a global credit-deposit operations market.

Due to the territory. It's accepted to distinguish the following leading markets: European, American, Asian. In these markets large financial centers are marked: London, Zurich, Frankfurt am Main, Paris, etc in Europe. New York in North America.

Tokyo, Singapore, Hong-Kong in Asia.

One can also speak about national foreign exchanges (for ex., inner foreign exchange market in Russia) for which one or another restrictions concerning buying, selling, lending and payments in foreign currency are relevant.

Foreign exchange market participants:

Central banks. Their main functions are national currency reserves management and providing exchange rate steadiness. For these purposes banks can perform direct exchange market interventions and indirect influence through refinancing rate level regulation, reservation standards etc.

Commercial banks. They execute the main part of foreign exchange operations. Banks keep the accounts of market participants and execute necessary for their own purposes conversion and credit and deposit operations through them.

Commodity and stock markets complex needs in foreign currency exchange and in financial resources attraction and investment are concentrated in banks. Except for clients' needs satisfaction banks can perform operations by itself from its own funds. Finally, global foreign exchange market is a market of interbank transactions. The largest influence is made by leading international banks - their daily transaction amount reaches milliards of dollars. Amount of one interbank transaction with the real physical settlement on the second banking day is about $ 5 mln, or its equivalent. The cost of one conversional payment is from $ 30 up to $300. More than that, banks have to bear expenses up to $ 6.000 on interbank information-sale terminal. Due to this reasons Forex does not execute conversions of small amounts. It's cheaper to appeal to financial mediators (banks or foreign exchange broker).

In the case of multidirectional demands and a great number of clients the situation of bank clearing appears, when the mediator doesn't have to appeal to

third-party contractor (there's no need to perform real conversion through Forex).

Firms executing foreign trade operations.

Importers total needs form foreign exchange strong demand and exporters needs in their turn form foreign exchange supply, also in a way of foreign-currency deposit. As a rule, the firms don't have the direct access to a foreign exchange market and transact conversional and deposit operations through commercial banks.

International investment trusts, retirement and hedge funds, insurance companies.

Their main purpose is diversified portfolio management, which is achieved by investment in government and corporate bonds of different countries. They are simply called funds. Leading transnational firms performing global corporate investments, such as creation of branch offices and joint business, can be included in this group.

Monetary exchange. In many countries national monetary exchanges are functioning. They perform currency exchange for corporate bodies and market exchange rate development. The state usually adjusts exchange rate level due to local exchanging market compactness.

Foreign exchange brokers. Brokers join together foreign exchange buyer and seller and execute conversion or credit and deposit operations between the parties. For their brokerage they charge a broker commission in percents of contract amount. More often the commission charge is less than the difference between borrowing rate and bank deposit rate. This function can be performed by banks also. In this case they don't accommodate and carry the corresponding risks.

Physicals. Citizens can execute a wide range of operations, each of them being not large, but in final they can form a substantial extra supply and demand: tourism payment, money transfer, cash buying/selling as a kind of savings, speculative exchange operations.