The Foreign Exchange Market

The Research Handbook of Financial Markets, edited by Refet Gürkaynak and Jonathan Wright. Edward Elgar. 2022.

26 Pages Posted: 6 Apr 2022 Last revised: 19 Aug 2022

See all articles by Alain Chaboud

Alain Chaboud

Board of Governors of the Federal Reserve System

Dagfinn Rime

BI Norwegian Business School

Vladyslav Sushko

Bank for International Settlements (BIS)

Date Written: March 21, 2022

Abstract

This chapter discusses the structure and functioning of the spot foreign exchange (FX) market. The market structure, which has become far more complex over the past three decades, has mostly evolved endogenously as the global FX market is subject to notably less regulatory oversight than equity and bond markets in most countries. Major banks used to dominate liquidity provision but they have found their role challenged by High Frequency Trading firms in an increasingly fragmented electronic market. The information structure of the market has also changed. As such, high-frequency cross-asset correlations, especially with the futures market, have become more important. The chapter also discusses the important role of the official sector in the FX market, and it highlights a few special topics such as flash events and the FX fixing scandal. We conclude with some suggestions for future research.

Keywords: Financial markets, Foreign exchange, Market microstructure, Dealer intermediation, Electronic trading, Algorithmic trading

Suggested Citation

Chaboud, Alain and Rime, Dagfinn and Sushko, Vladyslav, The Foreign Exchange Market (March 21, 2022). The Research Handbook of Financial Markets, edited by Refet Gürkaynak and Jonathan Wright. Edward Elgar. 2022., Available at SSRN: https://ssrn.com/abstract=4063213 or http://dx.doi.org/10.2139/ssrn.4063213

Alain Chaboud

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
(202) 452 3756 (Phone)

Dagfinn Rime (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway
+47-46410507 (Phone)

HOME PAGE: http://home.bi.no/dagfinn.rime/

Vladyslav Sushko

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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