The foreign exchange
The business house, international investors and multinationals operate to meet their requirement for spot or forward currencies. They deal directly with the banks by placing orders for sale of specified currencies. Commercial banks are the main players in the market. They buy and sale in response to the clients requirement or on their own account as permitted by the open position. Central bank may participate in the market to influence the exchange rates especially when it apprehends a draw down of the foreign currency reserves or to toward off speculative pressure. The central bank also enters the market to make or receive payments in the foreign exchange.
The phenomenal growth of volume of transactions in the international foreign exchange market is very big, and is getting bigger, so to say, by leaps and bounds. Phenomenal growth of international trade and most of all cross country movement of fund and international reserves have all contributed to unprecedented rise in the foreign exchange market. International financial statistics, a publication of IMF, put the level of world exports in 1950 as only US dollar $57.20 billion. Within a space of about 30 years it rose to $1,508.20 billion in 1979. by 2004 it reached $7430.20 billion. Even if we adjust the numbers for inflation the rise in word trade is phenomenal in relation to, say early this century when world trade had barely crossed $ 3 billion mark.
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