Role Of Central Bank In Forex Market

FOREX includes various countries’ central banks, like
the U.S. Federal Reserve. They participate in the FOREX to serve the financial
interests of their country. When a central bank buys and sells its or a foreign
currency the purpose is to stabilize their own currency’s value.
The FOREX is so large and is composed of so many participants, that no one
player, even the government central banks, can control the market. In
comparison to the daily trading volume averages of the $300 billion in the U.S.
Treasury Bond market and the approximately $100 billion exchanged in the U.S.
stock markets, the FOREX is huge, and has grown in excess of $1.5 trillion daily.
The word “market” is a slight misnomer in describing FOREX trading. There is no
centralized location for trading activity (“pit”) as there is in the currency futures
(and many other) markets. Trading occurs over the phone and through the
computer terminals at hundreds of locations worldwide. The bulk of the trading is
between approximately 300 large international banks, which process transactions
for large companies, governments and for their own accounts. These banks are
continually providing prices (“bid” to buy and “ask” to sell) for each other and the
broader market. The most recent quotation from one of these banks is
considered the market’s current price for that currency. Various private data
reporting services provide this “live” price information via the Internet.