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Mike Buckle and John Thompson

10.1   Introduction A foreign exchange market is where one currency is exchanged for another. This important set of markets facilitate international trade by companies and international investments by investors. However, a substantial amount of trading in these markets is speculative in nature. The UK is the main centre in the world for foreign

in The UK financial system (fifth edition)
Oonagh McDonald

Chapter 6 A rapidly changing foreign exchange market This chapter is designed to show how much the foreign exchange market has changed over the years. The days of noisy currency trading floors where dealers shouted at each other have long gone, replaced by computers and people tapping at keyboards or talking quietly to each other. When did the foreign exchange market start to change and why does this matter? A different market begins to emerge As with LIBOR, there are suggestions that rigging or manipulating the foreign exchange (FX) market began in 2005. To

in Holding bankers to account
Oonagh McDonald

Chapter 7 Manipulating the foreign exchange market As we saw in the last chapter, the BIS Triennial Surveys show that dealers generally take orders from clients but executed them in the market as principal, bearing the consequent price risk, rather than executing in the market as agent acting for the client. To manage the risks associated with the flow of client orders, dealers hedge by executing FX transactions in and around the calculation window, which results in a large spike in the trading volume. This creates a market in which the dealer is agreeing to

in Holding bankers to account
A decade of market manipulation, regulatory failures and regulatory reforms
Author: Oonagh McDonald

This book provides a compelling account of the rigging of benchmarks during and after the financial crisis of 2007–8. Written in clear language accessible to the non-specialist, it provides the historical context necessary for understanding the benchmarks – LIBOR, in the foreign exchange market and the Gold and Silver Fixes – and shows how and why they have to be reformed in the face of rapid technological changes in markets. Though banks have been fined and a few traders have been jailed, justice will not be done until senior bankers are made responsible for their actions. Provocative and rigorously argued, this book makes concrete recommendations for improving the security of the financial services industry and holding bankers to account.

Abstract only
Susan Strange

electronic machines. They are just like the gamblers in casinos watching the clicking spin of a silver ball on a roulette wheel and putting their chips on red or black, odd numbers or even ones. As in a casino, the world of high finance today offers the players a choice of games. Instead of roulette, blackjack, or poker, there is dealing to be done – the foreign exchange market and all its variations; or in bonds, government securities or shares. In all these markets you may place bets on the future by dealing forward and by buying or selling options and all sorts of other

in Casino Capitalism
Abstract only
Helen Thompson

difficulties with wage demands in the 1970s and early 1980s, they were able to use the state’s coercive power to weaken the trade unions and make resistance to anti-inflationary discipline harder. Eventually, governments in all developed countries were forced to adjust their welfare states, and some also their patronage strategies, to the deflationary bias created by the new foreign-exchange markets, and they did so without precipitating a constitutional crisis or having to legislate by decree.1 Even when the governments of the EU member states agreed to abide by the

in Might, right, prosperity and consent
Abstract only
Mike Buckle and John Thompson

This conclusion provides a brief summary of the nature of the UK financial system as presented in this book. The financial crisis of 2007-8 has resulted in major changes to the whole framework of regulation and supervision of the financial system. Collateralised debt obligations and structured investment vehicles were badly designed and credit default swaps misused, with the result that they all contributed to the financial crisis. In addition, the reputation of the banks has not been enhanced by their being associated with a series of financial scandals. These include mis-selling of payment protection insurance, fraud and the rigging of LIBOR and the foreign exchange markets. Despite the malpractices it can still be contented that finance plays an important role in the economic growth of a country and the poor reputation of the banks held by the general public is only partly justified.

in The UK financial system (fifth edition)
Theory and practice
Authors: Mike Buckle and John Thompson

The early part of the twenty-first century has witnessed a sea-change in regulation of the financial system following the financial crisis of 2007-2008. Prior to that financial crisis, the official policy was directed to deregulating the financial system, whereas after 2008 the move is towards increased regulation. This book begins the study of the UK financial system with an introduction to the role of a financial system in an economy, and a very simple model of an economy. In this model the economy is divided into two distinct groups or sectors. The first is the household sector and the second is the firms sector. The book describes the process of financial intermediation, and in doing so, it examines the arguments as to why we need financial institutions. It highlights the nature of financial intermediation, and examines the various roles of financial intermediaries: banks as transformers, undertaking of transformation process, and providers of liquidity insurance. The nature of banking, the operations carried out by banks, and the categories of banking operations are discussed next. The book also examines the investment institutions and other investment vehicles. It examines the role of central banks in the financial system in principle, particularly, the role of the Bank of England. Primary market for equity issues, secondary market, the global stock market crash of October 1987 and efficient markets hypothesis are also covered. The book also looks at the trading of financial derivatives, risk management, bank regulation, and the regulation of life insurance companies, pension funds.

Abstract only
Susan Strange

value of the dollar were as stable in terms of the goods and services it bought at home as it was in the 1960s; and if its value were to be unaffected by the monetary shifts which cause such turbulence in the foreign exchange markets, then many of the economic problems which are secondary consequences of either an unduly weak or an overly strong dollar would melt away. But putting the economic management of the United States in order is clearly a task easier said than done. It requires first, the political conviction that it has to be done. Then it requires some

in Casino Capitalism
Susan Strange

’s monetary and financial system – whether it was a reform or the reverse – took place in the 1970s that was not initiated and supported by the United States. Again, from a much longer list that could be made, I shall select five of the key non-decisions in the field of collective management that were made from 1971 to the present that seem to me to support this contention. Leaving the markets alone, 1972 The first non-decision to do with not exercising some authority over the foreign exchange markets came in the wake of the Smithsonian Agreement of 1971. This agreement to

in Casino Capitalism