Foreword

Marc Chandler

The foreign exchange market is the biggest of the capital markets, with an average daily turnover in excess of US$5 trillion. That is such a mind-boggling number; to put it into perspective, consider that in one week its turnover is sufficient to cover world trade for a whole year. It is also one of the most exciting markets. It is a battle of wits between computers, central bankers, traders, hedge funds, corporations, asset managers, debt managers and speculators, from Monday morning in Wellington to Friday evening in New York. Given the globalisation of savings, all of the factors that drive debt and equity markets can influence the foreign exchange market and more.

The FX market is more akin to the three-level chess played in Star Trek than the two-dimensional version we may be more familiar with. There is the cash or spot market, multi-segmented derivatives markets (eg, forward, futures and swaps), an options market, and all sorts of combinations thereof. Liquidity is shifted through these various channels, and there is great variation among the currencies.

The foreign exchange market is also a new market even though both money and exchange are as old as recorded history

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