Foreign exchange market daily turnover exceeds $ 3 trillion

Ramani Kangaraarachchi

'Today, the global foreign exchange market has become the largest financial markets in the world with a average daily turnover of more than $ 3 trillion. Centre for Banking Studies Director Udeni Alawattage said. Speaking at the inauguration of a five day international seminar on Treasury and Foreign Exchange Operations commenced at the CBS yesterday he said according to 2010 Triennial Central Bank survey, coordinated by the Bank for International Settlements , average daily turnover was US $ 3.98 trillion in April 2010 against US $ 1.7 trillion in 1998 indicating 134% increase during the last 12 years.

He said out of this US $ 3.98 trillion US $ 1.5 trillion was spot foreign exchange transactions and US $ 2.5 trillion was traded in outright forwards, FX swaps and other currency derivatives. The global balance sheet which represents international investment positions of all countries increase from 50 percent to 150 percent of GDP over a period of 15 years. The rise is even more dramatic making it US $ 15 trillion to nearly US $ 100 trillion in absolute dollar terms.

Alawattage said the message here is that financial globalization has been even more profound than trade globalization accounting much more higher gross financial flows than trade flows and the international balance sheet growth has far outpaced economic growth. In this scenario Forex business is a profitable business for financial institutions and this contain a considerable portion of its business portfolios. As these phenomena grew more quickly than any other business, the instability of the global financial infrastructure was dramatically increased, as evidenced by micro level financial scandals and risky exposures in the individual financial institutions.

He said at macro level, the global financial crisis experienced during 2007-10 and recent European sovereign debt crisis is a derivative of these kinds of risky exposures. As the main aim of most foreign exchange traders is to maximize earnings at the least time frame and cost by simply taking advantage of the dynamics in the foreign exchange market it can be concluded that, the foreign exchange operations work as a double edge sward which can create either stability of instability through financial disasters.