[PDF Notes] What are the Important Dealers in the Foreign Exchange Market?

Important dealers in the foreign exchange market are banks, brokers acceptance houses, central bank and treasury authorities.

1. Banks:

The banks dealing in foreign exchange have branches (called exchange banks) in different countries and maintain substantial foreign currency balances in these branches to serve the needs of their customers.

These branches discount and sell foreign bills of exchange, issue bank drafts, make telegraphic transfers etc. If a bank has excess foreign currency balances, it can sell these balances to other banks, foreign currency brokers, and sometimes to foreign monetary institutions.

Similarly, if an exchange bank has deficit foreign currency balances, the other banks, the brokers and the foreign monetary institutions become the sources of foreign currency supply.

2. Brokers:

Banks do not deal directly with one another. They use the services of foreign exchange brokers. The brokers bring together the buyers and sellers of foreign exchange among banks. By using the brokers, the banks save time and effort.

If a bank wants to buy or sell foreign exchange, it informs the broker the amount and the rate of exchange in which it is interested. If the broker succeeds in carrying out the transaction, he receives a commission from the selling bank.

3. Acceptance Houses:

Acceptance houses also deal in foreign exchange. They accept bills on behalf of their customers and thus help in foreign remittances.

4. Central Bank and Treasury:

The central bank and the Treasury of a country are also the dealers in foreign exchange. These institutions may intervene in the exchange market occasionally. They enter the market both as buyers and sellers to prevent excessive fluctuations in the exchange rates.

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