Foreign Exchange Market Research Articles

Inferring Dealer Networks in the Foreign Exchange Market Using Conditional Transfer Entropy: Analysis of a Central Bank Announcement.

The foreign exchange (FX) market has evolved into a complex system where locally generated information percolates through the dealer network via high-frequency interactions. Information related to major events, such as economic announcements, spreads rapidly through this network, potentially inducing volatility, liquidity disruptions, and contagion effects across financial markets. Yet, research on the mechanics of information flows in the FX market is limited. In this paper, we introduce a novel approach employing conditional transfer entropy to construct networks of information flows. Leveraging a unique, high-resolution dataset of bid and ask prices, we investigate the impact of an announcement by the European Central Bank on the information transfer within the market. During the announcement, we identify key dealers as information sources, conduits, and sinks, and, through comparison to a baseline, uncover shifts in the network topology.

Responses of Foreign Exchange Market to External Shocks: What Makes Differences?

Responses of Foreign Exchange Market to External Shocks: What Makes Differences?

PENERAPAN STRATEGI MARKETING MIX PADA PERUSAHAAN FOREX STUDI KASUS : PT INTERNATIONAL BUSINESS FUTURE

Business development in Indonesia continues to increase, one of these businesses is the trading business on the foreign exchange market. The 7P marketing mix is a method to introduce the most effective forex business. PT International Business Future is a company that operates in the forex business sector. The purpose of this study is to determine the assessment and response of investors to the marketing mix at PT IBF. The research is descriptive qualitative with the research method used was a case study at PT IBF Bandung branch at Mohammad Rhamdan. The research used an interview system and distributed questionnaires. The Results show that the product and promotion variables show a very positive response from investors, which means these two variables have succeeded in becoming a good marketing mix strategy. Meanwhile, the lowest but still positive variables are in the place variable, especially the company image and in the people variable, sales professionalism in explaining the product. Variables that show a positive response can continue to be improved while the lowest variables can be made stronger changes or improvements. The results of the cross-tabulation show that respondents with higher education tend not to agree with the promotion, which means that PT IBF needs to provide a new marketing strategy.

General characteristics of investment law in India

The aim of the work is a comprehensive analysis of investment law in India. The methodological basis of the study are official websites of specialized institutions, laws, analytical reports, articles by other scientists, etc. According to the results of the conducted research, it was found that two main legislative acts regulate investment activities in India. The first piece of legislation is the Foreign Exchange Management Act, 1999, the main objective of which is to promote foreign trade and foreign exchange and to develop and maintain the foreign exchange market in India. According to Section 5 and 6 of the Law, operations with a current currency account are allowed only on the condition that they do not have any restrictions (criminal, state, etc.). Capital account transactions mean transactions during which changes in assets or liabilities occur (referring to liabilities of resident and non-resident persons in relation to assets). The second act – Consolidated Policy on Attracting FDI in India by the Department of Trade and Industry Promotion 2020 – includes clarification of all investment norms. The policy update is in line with the policy of need to attract FDI to India, as per the plans of the Department. In conclusion, it was found that the legal system of India is based on common law, which is based on English law. According to the Constitution of India, a quasi-federal structure has been approved, which provides for the division of legislative power between the central government and the individual states. Foreign direct investment in India is governed by two main pieces of legislation. The first is the Foreign Exchange Management Act of 1999, its main objective is to facilitate foreign trade and foreign exchange and to develop and maintain the Indian foreign exchange market. The second – Consolidated policy on attracting FDI to India. Attracting foreign direct investment in India is possible in two ways: automatic investment of FDI and obtaining permission for FDI.

Research on the Problems and Solutions of China's Foreign Exchange Market

Research on the Problems and Solutions of China's Foreign Exchange Market

Analysis of the Current Situation, Problems and Countermeasures of China's Foreign Exchange Market

Analysis of the Current Situation, Problems and Countermeasures of China's Foreign Exchange Market

FOREIGN EXCHANGE RATE PREDICTION OF INDONESIA'S LARGEST TRADING PARTNER BASED ON VECTOR ERROR CORRECTION MODEL

Foreign exchange rates from the currencies of trading partners are a critical element in the development of Indonesia's economic landscape. As an active country in international trade, Indonesia's economic health is highly dependent on trade partnerships, movements, and interactions of foreign exchange rates from Indonesia's main trading partners. To achieve economic stability, Bank Indonesia intervenes in the foreign exchange market to keep the Rupiah exchange rate within a reasonable range. Indonesia is committed to achieving several points in the Sustainable Development Goals (SDGs), such as point 17, which emphasizes partnerships, and point 8, which underlines inclusive and sustainable economic growth. This commitment is an important factor in Indonesia's economic development. Therefore, it is necessary to predict the exchange rate value of Indonesia's largest trading partners considering these SDG aspects. In this study, the Vector Error Correction Model (VECM) was used to predict the foreign exchange rate of Indonesia's largest trading partners. The data used in this study is secondary data obtained from the investing.com webpage, comprising weekly data from January 2021 to November 2023. The foreign exchange rates of Indonesia's largest trading partners have a cointegration relationship, indicating long-term relationships and similarities in movements. The best model identified is VECM (1), with a very accurate MAPE value of 3.29%. The Impulse Response Function (IRF) analysis shows that the Chinese Yuan responds variably to different currencies, stabilizing over time. Variance Decomposition reveals that short-term fluctuations in the Chinese Yuan are primarily influenced by itself (87.89%) and significantly by the Singapore Dollar, South Korean Won, and Taiwan Dollar. The Granger Causality Test indicates that the Philippine Peso influences 11 other exchange rates, refining the VECM model and improving prediction accuracy. Indonesia is expected to build economic collaborations that can help achieve economic stability.

The Demand for Real Money Balances in Zimbabwe: An Error Correction Estimation

Purpose: The purpose of the study is to examine the stability of the money demand function in Zimbabwe. Understanding, the money demand function is a prerequisite for effective monetary policy formulation and understanding the monetary transmission process and shocks propagation in the economy. Materials and Methods: The study employs the error correction modeling methodology to investigate the money demand function for Zimbabwe using quarterly data from 2017q2 – 2023q2. The analysis is expanded to characterize the monetary transmission mechanism following a shock to the price level and how the demand for real money balances responds to both single period and multiple shocks. Findings: The findings confirm a stable long run money demand function that is subject to short run dynamics. In addition, real money demand responds positively to real GDP (Scale factor) and inversely related to the price level (inflation). Short term dynamics (particularly inflation expectations) compound real money demand collapse in response to rising inflation. Implications to Theory, Practice and Policy: Monetary Policy must aim to collapse inflation expectations through a tight monetary control program and a functioning interbank market for foreign exchange to avoid surging parallel market activity.

A Study on Export Receipts and Import Payments of Goods and Services the Analysis for Bank of Bangladesh

Bangladesh's Central Bank regulates international trade and monetary policy. To maintain a balanced trade, the bank promotes exporters and controls imports. The bank monitors the foreign exchange market and implements policies to help the country's economic growth and development. Bangladesh's export payments and receipts by key commodities, geographic region, and service delivery approach is studied. The banking sector has grown exponentially, resulting in new banks, modernised banks, and new services to meet people's requirements. Over 50 local and foreign banks compete for service delivery, interest rates and customer base. Export receipts of services and import payments of services the number of observations in the two variables, and our hypothesised mean difference to the degrees of freedom. Thus, the null hypothesis is accepted and the two-tail p-value increases. The significance of the difference between groups is unaffected by a negative t-value. Imports Major Commodities research F-value is good, but P-value is (0.00), which is highly significant. The null hypothesis is rejected. The study focusing on export receipt and import payments is essential as it deals with the financial aspect of international trade. Export receipts essentially refer to the payments received by a nation for the goods and services it exports to other countries while import payments refer to the goods and services brought in from other countries. This study is import payments as it provides insights into the economic conditions of nations concerning their global trade relations. It also helps nation assess their trade strengths and weaknesses to complete globally

Dual-market quantitative trading: The dynamics of liquidity and turnover in financial markets

Financial market liquidity is a popular research topic. Investor-driven research uses the turnover rate to measure liquidity and generally finds that the higher the stock turnover rate, the lower the returns. However, the traditional financial liquidity theory has been impacted by new machine-driven quantitative trading models. To explore high machine-driven liquidity and the impact of high turnover rates on returns, this study establishes a dual-market quantitative trading system, introduces a variational modal decomposition (VMD)-bidirectional gated recurrent unit (BiGRU) model for data prediction, and uses the back-end Hong Kong foreign exchange market to develop a quantitative trading strategy using the same rotating funds in the U.S. and Chinese stock markets. The experimental results show that given a principal amount of 210,000.00 CNY, the final predicted net return is 226,538.30 CNY, a net return of 107.86%, which is 40.6% higher than the net return of a single Chinese market. We conclude that, under machine-driven trading, increasing liquidity and turnover increase returns. This study provides a new perspective on liquidity theory that is useful for future financial market research and quantitative trading practices.

Interactions of Spot Foreign Exchange Markets among Taiwan, Hong Kong and Japan: Japanese Forward Premium/Discount as an Information Variable

Interactions of Spot Foreign Exchange Markets among Taiwan, Hong Kong and Japan: Japanese Forward Premium/Discount as an Information Variable

EXPLORING THE LINKAGES BETWEEN GREEN BONDS AND INTERNATIONAL FINANCIAL MARKETS: AN INTERNATIONAL PORTFOLIO PERSPECTIVE

The aim of study is to examine the dynamic linkages between green bond & international financial markets. In particular, the study investigates the inter-connections among green bonds, world’s developed and emerging equity markets, commodities market (gold & oil) and the foreign exchange market. Sample period ranges from July 1, 2014, to June 30, 2023 encircling numerous important events including COVID-19 pandemics. For empirical investigation, study used combination of several econometric techniques including Johansen Cointegration model and Granger Causality test and analysis for examining short & for long-term associations among markets. Results of study show that these markets are linked in varying degrees in long-run as evident from cointegration results that show two cointegrating vectors. This infers that there are limited diversification benefits specially in long-run in selected markets. In short-run, results show diversification potential as showed by results from Granger Causality tests. Results have important implications for investors & fund managers in making portfolio decisions, & policy makers in devising various strategies for risk mitigation during turbulent periods.

Interconnectedness in the FOREX market during the high inflation regime: A network analysis

Our study employs network analysis to examine the interconnectedness in the Foreign Exchange market, focusing on 18 key currencies from both advanced and emerging markets from 2017 to 2023. This analysis includes a comparative look at the impact of two major recent crises: the COVID–19 pandemic and the Russia-Ukraine war. The latter is notably marked by increased inflation and uncertainty in economic policies. During the COVID–19 pandemic, we observed a significant level of interconnectedness among the EURO and 17 other currencies, indicating a dense network. In contrast, the period of the Russia-Ukraine war revealed a tendency for countries less engaged in international trade to become more isolated, as seen by their greater distance from the network's centroid. Additionally, we developed the Systemic Contagion Index, which shows a heightened susceptibility to contagion among developed economies during both the COVID–19 and Russia-Ukraine war crises, underscoring the vulnerability of developed countries' currency networks in times of turmoil. This study provides valuable insights for investors and global businesses, offering guidance on assessing currency vulnerability and enhancing their strategies for hedging and managing risks amidst fluctuating market conditions, especially during the high inflation regime.

Analysis of Indian Foreign Exchange Markets: A Multifractal Detrended Fluctuation Analysis (MFDFA) Approach

The objectives of this paper are to analyse the presence of multifractality in daily exchange rates of the US dollar (USD), British Pound (GBP), Euro (EUR), and Japanese Yen (JPY) relative to the Indian Rupee (INR) for a specific period (1999–2018) and to investigate the source of the observed multifractality in these exchange rates. The research examines the multifractal spectra of logarithmic returns (daily price changes) for the four currencies. To investigate the origins of this multifractality, we conduct two transformations on the return series: (a) random shuffling of the original time series of logarithmic returns which disrupts any long-range correlations within the data. And (b) application of phase randomisation on the unaltered series which aims to preserve frequency information while altering timing-related characteristics of the data. We then look at the impact of these transformations on the multifractality. Our findings indicate that all four exchange rates exhibit multifractal characteristics in their return series. The source of multifractality differs between currencies: The USD is primarily driven by the “fat tail” of the distribution (extreme fluctuations). For the GBP and EUR, a combination of long-range correlations and fat tails contributed to multifractality. The JPY is mainly influenced by the broad tail of the distribution (more frequent but smaller fluctuations). These results have implications for policymakers and market participants. Based on these findings, policymakers should consider the specific characteristics of each currency when designing risk management strategies or regulatory interventions.

Impact of COVID-19 Crisis on Volatility Spillovers across Global Financial Markets: Evidence from Asymmetric GARCH Models

This study investigates the market volatility and asymmetric behavior in the commodity market, foreign exchange market, cryptocurrency, and stock markets by employing asymmetric GARCH models on the daily time series returns. The data covers the period from March 8, 2017, to March 17, 2023, and is divided in to three sub-periods: the entire sample period (March 8, 2017, to March 17, 2023), the pre-COVID-19 period (March 8, 2017, to March 10, 2020), and the during the COVID-19 period (March 11, 2020, to March 17, 2023). The empirical results show a high level of volatility persistence in all the financial markets during the COVID-19 pandemic. Additionally, the results indicate significant positive asymmetric behavior in the crude oil and stock markets during the pandemic. The findings further document that gold exhibits a strong resilience during the pandemic period, indicating its hedging ability during crisis periods. Moreover, the results suggest that the EGARCH model is the most appropriate model to capture the volatilities of the financial markets both before and during the pandemic. The findings of this study provide useful insights for investors and policymakers, enabling them to adopt effective strategies for investing in portfolios during crisis periods in the future.

UKRAINE’S MONETARY POLICY UNDER MARTIAL LAW

The relevance of the research is due to the change in the monetary policy regime of the National Bank of Ukraine (NBU), which consists in the transition from inflation targeting with a floating exchange rate to a fixed exchange rate as the nominal anchor of monetary policy under martial law. Such a plan to change the monetary policy regime was carefully calculated and outlined in the NBU's Monetary Policy Guidelines for the Duration of Martial Law. The timeliness and effectiveness of the NBU's monetary policy decisions enabled it to mitigate the impact of the military shock on the macro-financial stability of the national economy. The purpose of the article is to consider the theoretical and practical aspects of the NBU's monetary policy under martial law. Methodology. The study uses a systematic method of cognition to determine the sequence of application of monetary policy instruments to smooth out monetary shocks of the wartime period; an abstract-logical method to understand the future monetary policy strategy based on the abandonment of the fixed exchange rate regime and a gradual return to inflation targeting; and a statistical method to analyse the dynamics of monetary indicators of the national economy. Results. The paper presents the main principles of the NBU's monetary policy under martial law. The first shock from the war led to changes in the conduct of monetary policy and a shift to unconventional instruments of its regulation. The gradual adaptation of the economy to the new conditions determined the NBU's further steps to ease monetary policy and move to greater exchange rate flexibility. Practical implications. The practical significance of the research results is to assess the conditions for the transition from the key policy rate-based inflation targeting regime as the main monetary policy instrument to the use of foreign exchange interventions as the main operation in the foreign exchange market under martial law. Value / Originality. The originality of the article is due to the need to identify the prerequisites for the transition to a new monetary policy strategy in a wartime economy. Conclusions. The NBU's timely response to the negative phenomena associated with deteriorating inflation expectations, multiple exchange rates and pressure on international reserves helped prevent the development of a currency and financial crisis in Ukraine. Despite the active hostilities, the NBU is trying to find options that will allow it to conduct an effective monetary policy in the face of a full-scale invasion and unprecedented internal and external shocks. Internationally, Ukraine has exceeded expectations and the NBU has shown a high degree of responsibility, professionalism and creativity in the conduct of monetary policy. Increased confidence in the central bank is a valuable resource in times of martial law.

Investigating the price volatility spillover effects in the poultry industry inputs market and the egg market in Iran: using the multivariate DCC-GARCH model

BackgroundThis paper investigates the effects of price volatility spillover in the poultry industry’s input markets, including soybean meal, day-old chicks and corn, and the foreign exchange market as an independent market, on the wholesale egg market in Iran. The experimental investigation is based on dynamic conditional correlation (GARCH-DCC). It is one of the most powerful and accepted methods for studying market volatility, whose representation is based on conditional variance. On the other hand, eggs are one of the main food items in the food basket of Iranian households, playing an important role in ensuring part of the food security of the country. However, the price volatilities of its inputs, which make up more than 70% of egg production costs, cause the instability of its price and the confusion of the producers of this sector. This is although in the relevant literature, there is little research on the issue of volatility spillover effects on agricultural product markets, especially in the country.ResultsThe findings show that any shock in the input market leads to volatility and instability in the market; on the other hand, these volatilities maintain their stability. In addition, there is a spillover of exchange market volatility into corn and soybean meal input markets.ConclusionsIn that context, this article emphasizes the knowledge of market relationships and their consequences, thereby suggesting appropriate policies to control and support the domestic poultry industry.

Russia's transition to settlements in national currencies in the context of changes in the world monetary and financial system

Aim. To determine the background and prospects of the Russian Federation's (RF) transition to settlements in national currencies in the context of changes in the world monetary and financial system.Objectives. To analyze the current state of the currency market of the Russian Federation in terms of currency structure and main instruments; to identify the reasons for the transformation of the currency market of the Russian Federation; to characterize the prerequisites for the transition to settlements in national currencies in foreign trade; to assess the prospects of such a transition and its impact on the currency market of the Russian Federation in the context of the latest trends in the development of the global monetary and financial system.Methods. With the help of general methods of scientific cognition, graphical analysis the current state, dynamics and structure of the currency market of the Russian Federation in the conditions of sanctions are considered. In addition, the article assesses the background and prospects of the Russian Federation's transition to settlements in national currencies in view of the new trends in the development of the world monetary and financial system.Results. In 2022, after the economic sanctions against Russia were imposed, the state was forced to accelerate the process of transition to settlements in national currencies with major trading partners, and the domestic currency market underwent a significant transformation. In the conditions of digitalization of the financial sphere and the development of central bank digital currencies (CBDCs) , the introduction of international settlements using the digital ruble seems to be a promising direction.Conclusions. The period after the sanctions against the Russian Federation were imposed (2022) is marked by significant changes in the domestic foreign exchange market, primarily associated with the gradual displacement of world currencies (primarily the dollar) and their replacement by the ruble and renminbi. In general, this trend reflects the state of the RF foreign trade. With the reduction in the volume of the local foreign exchange market and the withdrawal of Western players, the government is taking measures aimed at preserving the potential of the foreign exchange market. A promising direction for international settlements under sanctions is through CBDC. However, the implementation of such a system will take years, during which the financial system of the Russian Federation will have to preserve its potential in isolation from Western financial markets.

Does Terrorism Still Spread Fear to ASEAN’s Financial Market?

The research aimed to examine the financial markets’ responses to terrorist attacks in Southeast Asia. Market reactions were a reflection of public sentiment. The market reaction was calculated using the stock index indicator and the currency exchange rate of the country relative to the US Dollar. The research employed a paired test to compare the period prior to and following the terrorist attack. The research used Wilcoxon Test to examine 38 terrorist attacks across four Southeast Asian nations: Indonesia, Thailand, Philippines, and Malaysia. The research concludes that the stock index exhibits both normal and abnormal returns between pre-incident and post-incident periods. Post-incident returns are higher than pre-incident returns. Stockholders are not required to sell their existing holdings in response to a terrorist attack. Between pre-incident and post-incident investors who do not invest in the capital or money markets, the foreign exchange market does not exhibit significant changes. Investors can profit by purchasing stock or foreign currency on the day of the incident or one day afterwards and selling it three days later.

Association rules forecasting for the foreign exchange market

Several association rule mining algorithms exist, and among them, Apriori is one of the most commonly used methods for extracting frequent item sets from vast databases and generating association rules to gain insights. In this research, we have applied a data mining technique to implement association rules and explore frequent item sets. Our study introduced a model that employs association rules to uncover associations between the foreign exchange market, the gold commodity, and the National Association of Securities Dealers automated quotations (NASDAQ). We suggested a method that used data mining to identify the good points of buying and selling in the foreign exchange market by utilizing technical indicators such as moving average convergence divergence (MACD) and the stochastic indicator to create association rules. The experimental findings indicate that the proposed model successfully generates strong association rules.