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Role of Commercial Banks in FOREX! Thursday, September 07, 2006

1. They facilitate transactions between two parties, such as companies wishing to exchange currencies (consumers), and
2. They speculate by buying and selling currencies. The banks take positions in certain currencies because they believe they will be worth more (if "buying long") or less (if "selling sort") in the future. It has been estimated that international banks genrate up to 70% of their reevenue from currency speculation. Other speculators include many of the worlds' most successful traders, such as George Soros.
   
3. The third category of the FOREX include various countries' central banks, like the U.S. Federal Reserve. They participate in the FOREX to serve the financial interests of their country. When a central bank buys and sells its or a foreign currency the purpose is to stabilize their own currency's value.

The FOREX is so large and si composed of so many participants, that no one player, even the government central banks, can control the market. In comparision to the daily trading volume average of the $300 billion in the U.S. Treasury Bond market and approximately $100 billion exchanged in the U.S. stock markets, the FOREX is huge and has grown in excess of $1.5 trillion daily.

The word "market" is a slight misnomer in describing FOREX trading. There is no centralized location for trading activity ("pit") a there is in the currency features( and msny other) markets. Trading occurs over the phone and through the computer terminals at hiundereds of locations worldwide. The bulk of the trading is between approximately 300 large international banks, which process transactions for large companies, governments and for their own acounts. These banks are continually providing prices("bid" to buy and "ask" to sell) for each other and the broader market. The most recent quotation from one of these banks is concidered the market's current price for that currency. Various private data reporting services provide this "live" price information via the internet.

vib  9:00 PM