Major
FOREX participants include commercial and investment banks and central banks. Other participants include corporations, hedge funds, and millions of trader worldwide. The top seven banks that provide liquidity in this market include
Bank of America,
Credit Suisse,
First Boston,
Goldman Sachs,
HSBC,
J.P. Morgan,
Morgan Stanley,
Dean Witter, and
UBS Warburg.
Recently FORBES business magazine published it's "400 Richest People in America" issue. It is highly recommended you read it because you will find many references of FOREX trading. One of the most famous of the wealthy elite is a man named George Soros who was recently ranked the 26th Richest Person in America.
Soros, the hedge-fund manager who made trading history in 1992 by trading against the British Pound, correctly bet that the British Pound would decline in value against the
Euro, the
Canadian Dollar, and the
Australian Dollar. It was disclosed in 2003 that he had taken a short postion. His statement would have made a huge impact ten years ago, when hedge funds had the potential to significantly influence the value of important international currencies. In fact, in 1992, Soros made an estimated $1 billion profit by helping push the British Pound out of the European Exchange Rate Mechanism, earning him the title "The Man Who Broke the Bank of England".
Bank of America reported in its 2002 annual report a
$530 million profit from foreign exchange trading revenue under “Global Investment Income”. Meanwhile, it reported only a $384 million profit from trading stocks, and a $86 million profit from commodities trading.
It is not uncommon for a large bank to trade daily, billions of dollars. Some of this trading activity is done on behalf of corporate customers; however bank dealers are performing a large amount of trading to make the bank profits. The financial statements of a majority of banks throughout the U.S. will denote income received from foreign exchange trading.
The commercial companies’ international trade exposure is the backbone of the foreign exchange market. Companies such as Siemens, Nestle, Toyota, BP Amoco, Volkswagen, Intel, Dell Computers, Dow Chemicals, Monsanto, Merck Pharmaceuticals, SmithKline Beckman, Lufthansa, Caterpillar, Union Carbide and Kodak have traded or continue to trade heavily in foreign currencies. Most of these companies established in-house trading facilities or subsidiaries to manage their currency trading.
Caterpillar established its special currency management group back in 1986, when it reported a $100 million profit on foreign exchange that turned its $24 million operating loss into a $76 million profit for that year.
DaimlerChrysler threw itself into major investment headlines in late 2003 when it acknowledged that more than half of its 2Q 2003 operating profit was generated by currency trades – making more money on foreign exchange than in selling cars. The car maker reported quarterly operating profit of €641 million ($1 billion), beating some analysts estimates. The company says approximately €350 million of this profit was generated in foreign exchange.
In a recent interview,
Warren Buffet, perhaps the most successful investor in history, and
Chairman of Berkshire Hathaway, Inc., stated “Through the spring of 2002, I had lived nearly 72 years without purchasing a foreign currency. Since then Berkshire has made significant investments in, and today holds, several currencies.”
The foreign currency exchange is a much different market today, as economies are far more interconnected and currency markets are far more liquid and active. The estimated $2 trillion traded daily currently is several times the size of the daily trade in 1993. These days, “exchange rates are effectively set by American Backpackers, or Italian tourists getting dollars at Disney land, or Nokia selling phone equipment to China Telecom, or Coca-Cola selling syrup to a South African bottler, or Daimler buying Chrysler, or Intel paying firms to construct a facility in Taiwan in fact by the interaction of all these forces.
Forex Information
Forex History
Up until WWII, the British Pound was the the dominant world currency by which most currencies were compared. However, during World War II the Nazis undertook a major counterfeiting effort against the British Pound, and thus damaged it's standing. In contrast, WWII transformed the U.S. dollar from a failed currency after the stock market crash of 1929 to benchmark currency by which most other international currencies were compared. The U.S. economy was thriving, and the United States emerged as a world economic power. The first element of the Bretton Woods Accord was to peg the U.S. dollar to the price of gold at $35.00 an ounce, using the Gold Standard. With this benchmark anchoring the U.S. dollar, other major currencies were pegged to it and allowed to fluctuate no more than 1% on either side of the set standard. When a currency's exchange rate would approach the limit on either side of this standard the respective nation's central bank would intervene to bring the exchange rate back into the accepted range. The Bretton Woods Accord governed currency relationships until the early 1970's when a floating exchange rate system was adopted.