Chapter 16 - The Foreign Exchange Market

Abstract

This chapter discusses foreign exchange market. A foreign exchange market is where buyers and sellers of currencies meet. However, there is usually no centralized meeting place. Trading is done over the telephone or through the telex. Therefore, a foreign exchange market should be perceived not as a physical marketplace, but rather as a network of telephone and telex stations, including many direct lines, among the banks and brokers who deal in an area or currency, with cross links of a similar nature to other markets. Moreover, there is no fixed opening and closing time. The foreign exchange markets in Indonesia, Malaysia, and Thailand are small because of exchange controls and various regulations. The more developed the financial center, the greater the volume of foreign exchange business. The foreign exchange business in Manila is also much smaller, because the financial center is basically inward-looking, and there are exchange controls and restrictions on banks holding foreign exchange.