Foreign Exchange Markets: Structure and Systemic Risks

Foreign Exchange Markets: Structure and Systemic Risks

FOREIGN EXCHANGE TRADING INVOLVES SUCH LARGE CROSS-BORDER SETTLEMENTS THAT A FAILURE BY ONE PARTY TO DELIVER THE CURRENCY NEEDED FOR A SINGLE SETTLEMENT COULD DISRUPT THE GLOBAL FINANCIAL SYSTEM. THERE ARE, HOWEVER, TWO WAYS TO REDUCE SETTLEMENT RISK. THE FIRST APPROACH IS TO ELIMINATE THE DELAY BET...

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Bibliographic Details
Published in:Finance & Development 1996-12, Vol.33 (4), p.22-25
Main Author: Kodres, Laura E
Format: Magazinearticle
Language:eng
Subjects:
American dollar
Banking industry
BANKING, BANKS
Clearance & settlement
Correspondent banks
Currency
Derivatives
ECONOMICS
Finance
FINANCIAL SERVICE, BANKS, INSURANCE SYSTEMS, SECURITIES, EXCHANGES
Foreign exchange
Foreign exchange markets
Foreign markets
GLOBALIZATION, ON A GLOBAL SCALE
International finance
International markets
Money markets
NATURE OF CURRENCY AND MONIES IN USE
RISK
Risk management
Securities markets
Turnover
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Summary:FOREIGN EXCHANGE TRADING INVOLVES SUCH LARGE CROSS-BORDER SETTLEMENTS THAT A FAILURE BY ONE PARTY TO DELIVER THE CURRENCY NEEDED FOR A SINGLE SETTLEMENT COULD DISRUPT THE GLOBAL FINANCIAL SYSTEM. THERE ARE, HOWEVER, TWO WAYS TO REDUCE SETTLEMENT RISK. THE FIRST APPROACH IS TO ELIMINATE THE DELAY BETWEEN THE TWO LEGS OF A TRANSACTION. THE SECOND APPROACH IS TO REDUCE THE NUMBER AND SIZE OF PAYMENTS REQUIRING SETTLEMENT. ALTHOUGH THESE TWO APPROACHES WOULD HELP TO REDUCE SETTLEMENT RISK, THEY ARE NOT YET COMPREHENSIVE OR COORDINATED. VIGILANCE AND PERSISTENCE ON THE PART OF CENTRAL BANKS WILL BE ESSENTIAL IF THE APPROACHES ARE TO EVER BE SUCCESSFUL.
ISSN:0015-1947
0145-1707
1564-5142