Thursday, September 3, 2009

Foreign exchange brokers

Frequently, currency-trading banks do not deal directly with each other, but rely upon foreign-exchange brokers. Less than a dozen in number, these brokerage firms are in constant communication with the exchange trading rooms of the world‘s major banks. Their principal function is simply to bring buyers and sellers of foreign exchange together.
For example, bank wishing to sell foreign currency simply contacts a broker on its active list by telephone, indicating the amount and type of currency for sale. The broker then contacts buyers on his active-customer list, ascertaining the preferred price and quantity of each potential buyer. Once a deal is struck, the selling bank is notified to initiate a transfer of funds, and the broker receives a commission for his efforts. The foreign exchange broker‘s essential contribution is to reduce the search costs associated with finding buyers of foreign exchange. By providing convenience and an essential flow of trading information, the broker makes the foreign-exchange market more efficient. He ensures that prices for the world‘s major currencies accurately reflect the forces of supply and demand in the marketplace.

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