trading foreign exchange: a changing market in a changing world
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Note: Merchandise trade is the sum of exports and imports of goods.
U.S. and World Merchandise Trade, 1970-95
0
300
600
900
1,200
1,500
1970 1980 1990 1995
Billions of dollars
U.S.
0
2,000
4,000
6,000
8,000
10,000
1970 1980 1990 1995
Billions of dollars
World
F I G U R E 1 - 1
In some ways, this estimate understates the
growth and the present size of the U.S. foreign
exchange market. The $351 billion estimated
daily turnover covered only the three traditional
instruments in the “over-the-counter” (OTC)
market—spot, outright forwards, and foreign
exchange (FX) swaps; it did not include over-thecounter
currency options and currency swaps
traded in the OTC market, which totaled about
$32 billion a day in notional value (or face value)
in 1998. Nor did it include the two products
traded, not “over-the-counter,” but in organized
exchanges— currency futures and exchange-traded
currency options, for which the notional value of
the turnover was perhaps $10 billion per day.1
The global foreign exchange market also has
shown phenomenal growth. In 1998, in a survey
under the auspices of the Bank for International
Settlements (BIS), global turnover of reporting
dealers was estimated at about $1.49 trillion
per day for the traditional products, plus an
additional $97 billion for over-the-counter
currency options and currency swaps, and a
further $12 billion for currency instruments
traded on the organized exchanges. In the
traditional products, global foreign exchange
turnover, measured in current exchange rates,
increased by more than 80 percent between
1992 and 1998.
The expansion in foreign exchange turnover,
in the United States and globally, reflects the
continuing growth of international trade and
the prodigious expansion in global finance
and investment during recent years. With
respect to trade, the dollar value of United
States international transactions in goods and
services—the sum of exports and imports—
tripled between 1980 and 1995 to around 15 times
its 1970 level. International trade in the global
economy also has expanded at a rapid pace.World
merchandise trade is now more than 2½ times its
1980 level