IOE Tradeportal

Local FX market

Tourists are the main customers of local FX markets. The are usually seen in overseas countries under the names of currency exchanges, bureaux de change, cambios or wechseln. The rates are usually well padded with profit margin. The spread between buying and selling rates wide, and any transaction cost or commission charged, extortionate. The justification often given is that the individual amounts involved are relatively low and the overheads high. There is little effective competition due to the tourist’s lack of local knowledge. Tourists either have to take the local rate they are quoted or not proceed with the transaction.

National FX Market

Foreign exchange markets exist in the traditional and growing financial centres of the world, such as New York, Within each of these financial centres, banks and authorised dealers trade in their own domestic market. Each has its own customers which include traders that buy and sell internationally, companies with foreign currency accounts to receive and pay dividends and interest, businesses needing to pay for overseas travel and expenses etc.

FX rates of exchange are kept competitive by businesses getting quotes from other banks, especially for the larger transactions. Larger businesses also tend to be more aware of what a competitive rate should be on any given day due to the financial press and other sources of financial information. In these circumstances the bank is more concerned about keeping the larger customer happy.

International FX Market

Due to modern communications technology the international FX market operates 24 hours a day, 7 days a week. Literally the market follows the sun. As one centre closes for the night another is opening for the day. Open positions and buy or sell orders of individual banks are handed over from one centre to their branch in the next to ensure that the best deals are achieved.

The London Foreign Exchange market is considered to be the world's largest. Throughout the day the exchange rates are constantly traded and updated. The Internet and on-line information services such as Reuters for the professionals, or Ceefax and Teletext for the general public give either real-time or frequent updates of the movements of the major currencies. More recently websites are a prime sources of forex information.

Such rates are important for a number of people and organisations. For example:

importers sell to buy currency to pay overseas suppliers

foreign banks buy

for exporters the rate determines the the rate influences the cost of our exports, and consequently the amount we are able to sell abroad the rate also affects the price of imports and therefore how competitive home-produced goods are government includes the price of imports in the Retail Price Index.

This influences the rate of inflation calculation and influences interest rates set by the Bank of England.

Businesses, individuals and governments, therefore, have a need for the foreign exchange market.