Making the Market

Making the Market

"Making the market," another important use of foreign exchange, refers to transactions between brokers and traders at banks or directly between the traders at different banks. Normally these transactions are undertaken to provide sufficient foreign-exchange balances for the banks to conduct their normal commercial transactions as well as to balance their positions in foreign exchange so that they are not overbought or oversold in a currency. As mentioned earlier, 82 percent of the daily transactions in foreign exchange in the United States are between banks. These transactions obviously are part of making the market rather than commercial transactions.

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