For the majority of FX trades there is no unified or centrally cleared market , and there is very little cross-border regulation. As the currency market is having the over-the-counter (OTC) nature, there are rather a number of interconnected marketplaces, where the trading of different currencies instruments take place. This shows that rather than having a single exchange rate there are a number of different rates (prices), and that depends on what bank or market maker is trading, and where the trade is taking place. In practice the rates are often very close, because if this is not done then they could be instantaneously by the arbitrageurs . Due to the fact that the market is dominated by London, a particular currency’s quoted price is usually the London market price.
Although the main trading center is London, but the importance of New York, Tokyo, Hong Kong and Singapore cannot be denied. Throughout the world banks participate. Throughout the day currency trading happens continuously; as there is an end of Asian trading session, the European session begins, that is followed by the North American session and then back to the Asian session, excluding weekends.
Causes of Monetary Flows
Usually actual monetary flows as well as by expectations of changes in monetary flows causes the fluctuations in exchange rates. These monetary flows are usually caused by changes in gross domestic product (GDP) growth, inflation, interest rates, budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often they are released on scheduled dates, so same news have to be accessed by many people at the same time. However, the large banks enjoys an important advantage; and that is they are able to see their customers’ order flow.
