The Role of Central Banks in Forex Trading

Central Bank monitors the level of inflation in the country, the rate of the national currency and tries to adjust with three key interest rates:

1. Discount rate - Discount rate. The interest rate under which the Central Bank lends to commercial banks.
USA -6,50%
Switz. - 3,75%
UK - 6,00%
EU - 3,75%
Japan - 0,5%

American and British rates are quite high, therefore they are showing great interest of foreign investors.

2. Rate - Repo rate. The interest rate applied by the Central Bank in transactions with commercial banks and other lenders when buying a (registered) government treasury bills. CB thereby regulates the loan market. Fed Funds (Rate Repo USA)

3. Lombard rate - Lombard rate. The interest rate applied by the Central Bank on the security of real estate, gold values for loans to commercial banks.

With a decrease in interest rates increased business activity and increased inflation. Lower interest rates leads to a cheaper currency. An increase in interest rates leads to a reduction in business activity, lower inflation and appreciation of the currency. In modern conditions the method of influence on the currency continues to be the practice of buying and selling of foreign currency by central banks, known as currency intervention.

Central banks:

USA:
• FED - Federal Reseve System;
The decision to change the rates adopted FOMC-Federal Open Market Committee, which meets every six weeks for two days: Monday and Tuesday.
• Chairman of the Board - Alan Greenspan
The federal funds rate (refinancing) = 6.50%
Discount Rate = 6.0%.

Germany:
• Bundesbank (BBK, Buba) - The Central Bank of Germany
• Buba cooncil meeting - meeting Buba - every 2 weeks on Thursdays;
• Chairman of the Board - Ernst Welteke

Great Britain:
• Bank of England - BOE;
• Session 1 once a month;
• Chairman of the Board - Eddie George
Discount rate = 6.00%

Switzerland:
• Swiss National Bank (SNB);
• meeting - every Thursday;
• Chairman of the Board - Hans Meyer
rate of LIBOR = 3.25%

Japan:
• Bank of Japan (BOJ);
• meeting 24 hours a day;
• Chairman of the Board - Masaru Hayami
Discount rate = 0.50%

EU:
• Europian Central Bank (ECB);
• Chairman of the Board - Willem F. Duisenberg, President of the ECB
Discount rate = 3.75%.

Along with the central banks operate in the foreign exchange market, brokerage firms, who, working with a particular bank, acting as intermediary between the seller and the buyer of the currency. For certain advantages of working through a broker can be attributed anonymity in transactions, continuity of quotes, and the ability to offer their own prices.

In recent decades, the forex market has changed the nature of trade with the transfer of the urgency to change the focus of trade: there has been a significant increase in transactions, the execution of which takes place in the future. All this resulted, on the one hand, to increased susceptibility to opportunistic currency market change and a significant increase in currency fluctuations, and on the other hand, to increase capacity for a high investment. In many markets, along with widespread operations on purchase and sale of foreign currency received into derivative financial instruments - currency and financial futures and options. Examples of such exchanges have long been recognized as the world's centers of currency trading can serve as the London International Financial Futures Exchange (London International Financial Futures Exchange - LIFFE), the European Options Exchange in Amsterdam (European Options Exchange - EOE), the German Stock Exchange in Frankfurt Express (Deutsche Terminboerse - DTB), Singapore Exchange (Singapore International Monetary Exchange - SIMEX) (Sydney Futures Exchange - SFE) and the Stock Exchange Derivatives Trading in Sydney.