Journals A-Z
All Subjects
Free Journals
sciepub.com
Journal of Finance and Economics
ISSN (Print): 2328-7284 ISSN (Online): 2328-7276 Website: https://www.sciepub.com/journal/jfe Editor-in-chief: Suman Banerjee
Open Access
Journal Browser
Go
Issue 5, Volume 5
Article Metrics
  • 21106
    Views
  • 17655
    Saves
  • 0
    Citations
  • 7
    Likes
Export Article
Journal of Finance and Economics. 2017, 5(5), 195-203
DOI: 10.12691/jfe-5-5-1
Open AccessArticle

Foreign Exchange Market: Institutional Structure, Regulation, and Policy Implications

Fei Su1 and Jun Zhao2

1Finance Discipline Group, GTA Finance and Education Group, Shenzhen, China

2School of English Studies, Tianjin Foreign Studies University, Tianjin, China

Pub. Date: August 31, 2017
View Full Text Full Text PDF (340 KB) Full Text ePUB(577 KB)

Cite this paper:
Fei Su and Jun Zhao. Foreign Exchange Market: Institutional Structure, Regulation, and Policy Implications. Journal of Finance and Economics. 2017; 5(5):195-203. doi: 10.12691/jfe-5-5-1

Abstract

Electronic trading has transformed foreign exchange markets over the past decade, and the pace of innovation accelerates. This formerly two-tier market (namely, the interdealer and customer market) is now evolving into a multi-tier market and transaction costs are only a fraction of their former level. Entirely new agents have joined the fray, including retail and high-frequency traders, while foreign exchange trading volumes have almost tripled to 5.3 trillion dollars daily according to Bank for International Settlements 2013. Market concentration among dealers has risen reflecting the heavy investments in technology. This paper outlines the players in this market and the structure of their interactions. It also presents new evidence on how that structure has changed over the past two decades. Throughout, it highlights issues relevant to market regulation and exchange rate modelling.

Keywords:
foreign exchange market institutional structure regulation policy implication

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

Figures

Figure of 5

References:

[1]  Bank for International Settlements (2013). “Triennial Central Bank Survey of foreign exchange and derivatives market activity in 2013.” Triennial Central Bank Survey.
 
[2]  Rime, D., & Schrimpf, A. (2013). The anatomy of the global FX market through the lens of the 2013 Triennial Survey. BIS Quarterly Review, December.
 
[3]  Evans, M. D. (2002). FX Trading and Exchange Rate Dynamics. Journal of Finance, 57(6), 2405-2447.
 
[4]  Meese, R. A., & Rogoff, K. (1983). Empirical exchange rate models of the seventies: Do they fit out of sample?. Journal of international economics, 14(1), 3-24.
 
[5]  Evans, M. D., & Lyons, R. K. (2002). Informational integration and FX trading. Journal of International Money and Finance, 21(6), 807-831.
 
[6]  Frankel, J. A., & Rose, A. K. (1995). A survey of empirical research on nominal exchange rates (No. C95-051). University of California at Berkeley.
 
[7]  Lyons, R. K. (2001). The microstructure approach to exchange rates. Cambridge, MA: MIT press.
 
[8]  Evans, M. D., & Lyons, R. K. (2002). Time-varying liquidity in foreign exchange. Journal of Monetary Economics, 49(5), 1025-1051.
 
[9]  Osler, C. L. (2008). Foreign exchange microstructure. Encyclopaedia of Complexity and System Science.
 
[10]  Love, R., & Payne, R. (2008). Macroeconomic news, order flows, and exchange rates. Journal of Financial and Quantitative Analysis, 43(02), 467-488.
 
[11]  Evans, M. D., & Lyons, R. K. (2005). Do currency markets absorb news quickly?. Journal of International Money and Finance, 24(2), 197-217.
 
[12]  Felix, Salmon (2013). “Annals of market manipulation, FX edition”, Bloomberg News June 12, 2013.
 
[13]  King, M. R., Osler, C., & Rime, D. Foreign Exchange Market Structure, Players, and Evolution. Handbook of Exchange Rates, 1-44.
 
[14]  ACI Financial Markets Association (2013). The ACI Model Code. pp. 2-3.
 
[15]  Patrick Jenkins (2013). “The forex market is designed to encourage crime”, Financial Times November 6, 2013.
 
[16]  The Economist The rotten heart of finance, accessed August 21, 2013. http://www.economist.com/node/21558281.
 
[17]  Sheng, A. (2009). From Asian to global financial crisis: an Asian regulator's view of unfettered finance in the 1990s and 2000s (Vol. 3). Cambridge University Press.
 
[18]  Kuroda, H., & Kawai, M. (2012). Strengthening regional financial cooperation in East Asia. Financial governance in East Asia: policy dialogue, surveillance and cooperation, 136-66.
 
[19]  Ehlers, T., & Packer, F. (2013). FX and derivatives markets in emerging economies and the internationalisation of their currencies. BIS Quarterly Review, December.
 
[20]  Canales-Kirilenko, J. I. (2001). Foreign exchange market organization in selected developing and transition economies: evidence from a survey. IMF Working Paper.
 
[21]  Melvin, M., & Taylor, M. P. (2009). The crisis in the foreign exchange market. Journal of International Money and Finance, 28(8), 1317-1330.
 
[22]  Reiss, P. C., & Werner, I. M. (2005). Anonymity, adverse selection, and the sorting of interdealer trades. Review of Financial Studies, 18(2), 599-636.
 
[23]  Morgan Stanley Research (2014). “FX Pulse”. January 30, 2014.
 
[24]  Grimaldi, M. (2010). Detecting and interpreting financial stress in the euro area. ECB Working Paper No. 1214.
 
[25]  Vitale, P. (2011). The impact of FX intervention on FX markets: a market microstructure analysis. International Journal of Finance & Economics, 16(1), 41-62.
 
[26]  Cheung, Y. W., & Chinn, M. D. (2001). Currency traders and exchange rate dynamics: a survey of the US market. Journal of international money and finance, 20(4), 439-471.
 
[27]  Osler, C. L., Mende, A., & Menkhoff, L. (2011). Price discovery in currency markets. Journal of International Money and Finance, 30(8), 1696-1718.
 
[28]  Bjønnes, G. H., Rime, D., & Solheim, H. O. A. (2005). Liquidity provision in the overnight foreign exchange market. Journal of International Money and Finance, 24(2), 175-196.
 
[29]  Madhavan, A., & Smidt, S. (1993). An analysis of changes in specialist inventories and quotations. The Journal of Finance, 48(5), 1595-1628.
 
[30]  Hansch, O., Naik, N. Y., & Viswanathan, S. (1998). Do inventories matter in dealership markets? Evidence from the London Stock Exchange. The Journal of Finance, 53(5), 1623-1656.
 
[31]  Dunne, P. G., Hau, H., & Moore, M. (2010). A tale of two platforms: dealer intermediation in the European sovereign bond market.
 
[32]  Grossman, S. J., & Miller, M. H. (1988). Liquidity and market structure. the Journal of Finance, 43(3), 617-633.
 
[33]  Korczak, P., & Phylaktis, K. (2010). Related securities and price discovery: Evidence from NYSE-listed Non-US stocks. Journal of Empirical Finance,17(4), 566-584.
 
[34]  Mende, A. (2006). 09/11 on the USD/EUR foreign exchange market. Applied Financial Economics, 16(3), 213-222.
 
[35]  Goodhart, C., Love, R., Payne, R., & Rime, D. (2002). Analysis of spreads in the dollar/euro and deutschemark/dollar foreign exchange markets. Economic Policy, 17(35), 535-552.
 
[36]  Arnold, M., & Dunkley E. "Libor’s long and wild ride is coming to an end," Financial Times, July 2017. [Online]. Available: https:///www.ft.com/content/88d0dfee-72e0-11e7-aca6-c6bd07df1a3c. [Accessed Aug. 28, 2017].
 
[37]  Lee, O., "FX poll 2009: Staying power in troubled times," Euromoney, May 2009. [Online]. Available:https://www.euromoney.com/article/b1322p6mhqrbsz/fx-poll-2009-staying-power-in-troubled-times.[Accessed Aug. 28, 2017].
 
Manuscript template