Foreign exchange market integration
1、 Modern trading technology makes the global foreign exchange market a 24-hour continuous market
Every morning, from Wellington and Sydney to the closing of the West Coast market in the United States, the major markets in Australia, Asia and North America are connected from beginning to end. At any time of the business day, you can find a verified foreign exchange market for trading. The transaction mode mainly adopts telephone and telex. In the invisible market, the trading time is not limited by the traditional opening and closing time. Foreign exchange traders often transfer easy orders to the next market after the market is closed.
2、 Internationalization of banking institutions and liberalization of capital flow
In the late 1980s, countries dominated by OECD countries removed most of the restrictions on capital flows and foreign exchange control. While all countries open their capital markets independently, the OECD 24-hour countries have also formulated the OECD regulations on liberalization of capital flows and current account business, which were revised in may1989. The regulations clearly stipulate the obligations of Member States to liberalization. This has greatly promoted the integration of global financial and foreign exchange businesses.
3、 At the same time, the exchange rate quotation of each foreign exchange market tends to be the same, and the opportunity of local arbitrage no longer exists
Location arbitrage is to take advantage of the opportunity of inconsistent quotations in two or more markets to buy low and sell high to earn profits. It is divided into bilateral arbitrage and triangular arbitrage. However, due to the rapid development of communication technology, once the quotations in various markets are inconsistent, traders and even computer automatic trading procedures immediately find that with the rapid transfer of a large amount of funds, arbitrage opportunities are fleeting.
4、 In terms of intervention in the foreign exchange market, central banks of various countries often coordinate management and jointly intervene
In september1985, the United States, Japan, Germany, France and Britain announced a policy of joint intervention to curb the rise of the dollar. Driven and influenced by the five central banks, foreign exchange traders sold dollars one after another, which quickly pushed down the dollar exchange rate. In february1987, the finance ministers and central bank governors of the "seven western countries" determined the exchange rate target zone of the US dollar against major Western currencies at the Louvre conference. After that, the "group of seven" joined hands to successfully intervene on a large scale to support the US dollar. In the 1990s, due to the continuous conflicts of economic interests of various countries and the cracks in the coordination mechanism, the joint intervention in the foreign exchange market of western countries was inferior to the past in terms of quantity, frequency and effect. In 1991, Japan hoped that the United States would jointly intervene in the yen market to change the weakness of the yen, which was rejected by the United States. As a result, Japan's independent intervention failed. During the crisis of the European Monetary System in 1992, although the German central bank, the French bank, defended the franc, Germany's domestic interest rate remained high, encouraging market speculation to continue to buy the mark. Therefore, although the decline of the franc was temporarily restrained in the end, the central banks of the two countries paid a heavy price of hundreds of billions of marks.
