World Currency Exchange

In our world of national currencies, global currency exchange is necessary to facilitate international trade, make cross-border payments, and transfer purchasing power from one currency to another. The Forex market is the global currency exchange marketplace. The Forex market is where the all important exchange rate is set and where people exchange one currency for another.

The Tremendous Growth of the Currency Markets

In 1998, the Federal Reserve performed a study of the nation's 93 major currencies dealers. The study showed a daily average turnover of $351 billion after adjustments for double counting. That represents a 43 percent jump in turnover above the estimated daily turnover in 1995. A whopping 60 percent increase over daily turnover in 1977.

That number may be a little low as the report only took into account traditional currency instruments: spot, outright forwards, and foreign exchange swaps. The study didn't take into account the $32 billion daily turnover of over the counter options and currency swaps. The report also didn't take into account derivatives traded on exchange floors. It was estimated daily turnover in exchange traded currency options and currency futures totaled $10 billion.

The global currency market has experienced similar growth. A study by the Bank for International Settlements (BIS) found daily market turnover of $1.4 trillion for traditional products. An additional $97 billion per day in over the counter options and currency swaps as well as $12 billion in daily turnover for currency instruments traded on exchange floors. On a global scale, daily turnover in the currency market increased by 80 percent between 1992 and 1998.