Factors Behind The Volume Growth In

Foreign Exchange
In recent times, the world has seen a tremendous growth in foreign exchange currency trading,
especially after the different currencies were allowed to float freely against each other in the
world market. The daily turnover rose from US $5 billion in 1977 to US $600 billion in 1987 and
touched the $1,5 trillion mark by the end of year 2000. Let us study the main factors behind the
growth in foreign exchange bellow. The volatile nature of currency trading is also one of the
factors responsible for foreign exchange growth. In fact, it wont be inappropriate if we say that
the volatility is a sine qua non condition for trading. The only instruments that may be profitable
under conditions of low volatility are currency options.
Volatility in Interest Rate
The growth in foreign exchange can be attributed to the internationalization of world economy. It
has a great impact on the rates of interest rates as well. The world economy became greatly
interrelated and that added fuel in the need to change interest rates faster. Interest rates are
generally changed in order to adjust the growth in the economy, and interest rate differentials
have a substantial impact on exchange rates.
Internationalization of Business
In recent times, the competition in business world has increased by great folds thus resulting in
tremendous growth in foreign exchange. There is a continuous search for newer markets and
cheaper raw materials and labor. The expansion of business houses around the world are also the
major factors behind the growth in foreign exchange The speed of economic internationalization
increased even more during the 1990s, due to the fall of Communism in Europe and to up-anddown economic and financial development in both Southeast Asia and South America. These
changes have been positive toward foreign exchange, since more transactional layers were
added.
Increasing Corporate Interest
The flourishing results of a product or service aboard may be pulled down from the profit point
of view by adverse foreign exchange conditions and vice versa. Same way, a careful handling of
the foreign exchange may enhance the overall international performance of a product or service.
Proper handling of foreign exchange adds substantially to the rate of return. Therefore, interest in
foreign exchange has increased in the past decade. Many corporations are using currencies not
only for hedging, but also for capitalizing on opportunities that exist solely in the currency
markets.
Developments in Technology/Telecommunications

With the introduction of automated forex dealing systems in the 1980s, of matching systems in
the early 1990s, and of Internet trading in the late 1990s completely altered the way foreign
exchange was conducted. The dealing systems are online computer systems that link banks on a
one-to-one basis, while matching systems are electronic brokers. They are reliable and much
faster, allowing traders to conduct more simultaneous trades. They are also safer, as traders are
able to see the deals that they execute. The dealing systems had a major role in expanding the
foreign exchange business due to their reliability, speed, and safety.
Development of Computers and Internet
The advent of computer and internet played an important role in the foreign exchange
development. The major areas where the results are directly visible are the dealing systems;
matching systems simultaneously connect all traders around the world, electronically duplicating
the brokers' market. Moreover, the progress in the filed of telecommunications resulted in
reliable and much faster trading over the world. The various technical systems allowed traders to
conduct more simultaneous trades. They are also safer, as traders are able to see the deals that
they execute. The dealing systems had a major role in expanding the foreign exchange business
due to their reliability, speed, and safety. These days there are so many softwares available in the
market which can handle the entire forex trading of a business man on its own with little or no
human intervention. No doubts, the computers and internet are important foreign exchange
growth factors.
All the above listed are equally important Factors responsible for foreign exchange growth.