Friday, September 3, 2010

Foreign Exchange Markets

The primary reason FLG decided to major in international economics is that he was extremely interested in how the foreign exchange markets worked. He knew they were the largest markets, at least in nominal terms, in the world.

Felix Salmon takes a look at a report by the BIS and concludes:
Certainly the BRICs are going to see their tiny share of the FX market rise over time, while the Nordic countries are going to see their share fall. But none of the BRICs currently account for even 1% of global FX trading (which of course is 0.5% if you try to account for the double-counting.) Meanwhile, the Swedish krona is still 2.2%, and the Norwegian krone is 1.3%. The currency markets change much more slowly than global stock markets do.

FLG's wild ass answer would be that ForEx investors are very short-term investors and are even more concerned about liquidity and capital controls than equity investors.

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