Handbuch Treasury / Treasurer's Handbook

S. 450Part III: Foreign Exchange & FX Options

The Foreign Exchange Market is the place where supply of and demand for currency exchange meet and where currencies are exchanged at an agreed rate. Through the foreign exchange market the exchange of domestic money into foreign money is made possible and purchasing power changes from the domestic currency to the foreign currency. Global foreign exchange markets are characterized by foreign exchange trading. Next to financial institutions large industrial companies, private foreign exchange dealers, brokers and trading houses are the main participants on the foreign exchange market. Another important actor on the foreign exchange market are the central banks. The central banks can intervene in the market for (economic) political reasons, e.g. to rebalance the foreign exchange market.

The biggest part of foreign exchange trading is done OTC in interbank trading. In contrast to security markets, exchanges were hardly involved in foreign exchange trading and therefore largely eliminated. In Europe their function, ie, the setting of official exchange rates, is fulfilled by the reference rates. Online trading platforms such as electronic brokers or ...