Hasil gambar untuk usa flag liquidity ratio

When we set up a country we need a means of exchanging power that is measured in terms of money this has been discussed well in each of the two strata lectures in the field of financial management but the financial sector at this time has a scope and transactions in depth, especially not only through the process of fresh fund liquidity but the duration and tempo of financial disbursement transactions and the greater validity of information in the transaction data collection and information process is more important because in the time of the 21st century and the future where the amount of ownership of funds circulating in the world is so large, it requires a process of liquidity transaction value of money and product value goods that are always up to date and comprehensive in the calculation of product prices, especially the cost of goods sold from a product that is closely related to the value of real money before adding the added value of the product which is certainly closely related to the vision and mission of a product made and how big stabilization of the target customers that we are targeting in the position of comparability of the value of money transactions and the added value of a product and the price of the prime production with cost of goods sold. so many supporting theories for this are both basic concept concepts and those that include internet technology for example: JIT (Just In Time / number of products = number of users), Balance score card, Power price, Boston consulting group, and so on. every citizen needs working capital to carry out production activities so that there is an e-economic power between the product of selling and buying both import and export so that the country's resilience and the adequacy of working capital in the liquidity fund can last a long time which is interpreted in how much the dollar value owned by every country. why the value of a country's liquidity is determined by its resistance to the dollar reserves that it has, why not the oil reserves or other precious metals are all because the product is not flexible while the dollar is flexible and can be transacted electronically in business and financial informatics ; now let's explain the work process Lord Jesus Blesses US and Family

Gen . Mac Tech

Information and communication technologies, including their business implications, their planning, and their implementation. They program to:

Analyze IT requirements taking customer needs into account and implement these requirements in a practice-oriented manner
Analyze, model, abstract, and implement business-related and technical aspects in the course of IT projects
Quickly familiarize themselves with specialized topics in order to understand complex technical interconnections in the business environment
Discover methods for reconciling company strategy and information processing needs in order to optimize complex processes through the use of the latest information technology
Analyze and design systems as well as their interaction scenarios
View problems from both a customer and a contractor perspective
Identify, discuss, and resolve potential conflicts and possible misunderstandings between business and technology on both a technical and interpersonal level, and take preventative measures
Communicate with technical and non-technical professionals, present technical information in a way that is also understandable for non-technical personnel, and constructively contribute to ensuring positive collaboration within teams
Apply interdisciplinary approaches in the design of IT systems
Identify interrelationships in a holistic manner .

The concrete of Electronic Banking

For many people, electronic banking means 24-hour access to cash through an automated teller machine (ATM) or Direct Deposit of paychecks into checking or savings accounts. But electronic banking involves many different types of transactions, rights, responsibilities — and sometimes, fees. Do your research. You may find some electronic banking services more practical for your lifestyle than others.

Electronic Fund Transfers

Electronic banking, also known as electronic fund transfer (EFT), uses computer and electronic technology in place of checks and other paper transactions. EFTs are initiated through devices like cards or codes that let you, or those you authorize, access your account. Many financial institutions use ATM or debit cards and Personal Identification Numbers (PINs) for this purpose. Some use other types of debit cards that require your signature or a scan. For example, some use radio frequency identification (RFID) or other forms of "contactless" technology that scan your information without direct contact with you. The federal Electronic Fund Transfer Act (EFT Act) covers some electronic consumer transactions.

Here are some common EFT services:

ATMs are electronic terminals that let you bank almost virtually any time. To withdraw cash, make deposits, or transfer funds between accounts, you generally insert an ATM card and enter your PIN. Some financial institutions and ATM owners charge a fee, particularly if you don't have accounts with them or if your transactions take place at remote locations. Generally, ATMs must tell you they charge a fee and the amount on or at the terminal screen before you complete the transaction. Check with your institution and at ATMs you use for more information about these fees.

Direct Deposit lets you authorize specific deposits — like paychecks, Social Security checks, and other benefits — to your account on a regular basis. You also may pre-authorize direct withdrawals so that recurring bills — like insurance premiums, mortgages, utility bills, and gym memberships — are paid automatically. Be cautious before you pre-authorize recurring withdrawals to pay companies you aren't familiar with; funds from your bank account could be withdrawn improperly. Monitor your bank account to make sure direct recurring payments take place and are for the right amount.

Pay-by-Phone Systems let you call your financial institution with instructions to pay certain bills or to transfer funds between accounts. You must have an agreement with your institution to make these transfers.

Personal Computer Banking lets you handle many banking transactions using your personal computer. For example, you may use your computer to request transfers between accounts and pay bills electronically.

Debit Card Purchase or Payment Transactions let you make purchases or payments with a debit card, which also may be your ATM card. Transactions can take place in-person, online, or by phone. The process is similar to using a credit card, with some important exceptions: a debit card purchase or payment transfers money quickly from your bank account to the company's account, so you have to have sufficient funds in your account to cover your purchase. This means you need to keep accurate records of the dates and amounts of your debit card purchases, payments, and ATM withdrawals. Be sure you know the store or business before you provide your debit card information to avoid the possible loss of funds through fraud. Your liability for unauthorized use, and your rights for dealing with errors, may be different for a debit card than a credit card.

Electronic Check Conversion converts a paper check into an electronic payment in a store or when a company gets your check in the mail.

When you give your check to a cashier in a store, the check is run through an electronic system that captures your banking information and the amount of the check. You sign a receipt and you get a copy for your records. When your check is given back to you, it should be voided or marked by the merchant so that it can't be used again. The merchant electronically sends information from the check (but not the check itself) to your bank or other financial institution, and the funds are transferred into the merchant's account.

When you mail a check for payment to a merchant or other company, they may electronically send information from your check (but not the check itself) through the system; the funds are transferred from your account into their account. For a mailed check, you still should get notice from a company that expects to send your check information through the system electronically. For example, the company might include the notice on your monthly statement. The notice also should state if the company will electronically collect a fee from your account — like a "bounced check" fee — if you don’t have enough money to cover the transaction.

Be careful with online and telephone transactions that may involve the use of your bank account information, rather than a check. A legitimate merchant that lets you use your bank account information to make a purchase or pay on an account should post information about the process on its website or explain the process on the phone. The merchant also should ask for your permission to electronically debit your bank account for the item you're buying or paying on. However, because online and telephone electronic debits don't occur face-to-face, be cautious about sharing your bank account information. Don't give out this information when you have no experience with the business, when you didn’t initiate the call, or when the business seems reluctant to discuss the process with you. Check your bank account regularly to be sure that the right amounts were transferred.

Not all electronic fund transfers are covered by the EFT Act. For example, some financial institutions and merchants issue cards with cash value stored electronically on the card itself. Examples include prepaid phone cards, mass transit passes, general purpose reloadable cards, and some gift cards. These "stored-value" cards, as well as transactions using them, may not be covered by the EFT Act, or they may be subject to different rules under the EFT Act. This means you may not be covered for the loss or misuse of the card. Ask your financial institution or merchant about any protections offered for these cards.

Disclosures

To understand your rights and responsibilities for your EFTs, read the documents you get from the financial institution that issued your "access device" – the card, code or other way you access your account to transfer money electronically. Although the method varies by institution, it often involves a card and/or a PIN. No one should know your PIN but you and select employees at your financial institution. You also should read the documents you receive for your bank account, which may contain more information about EFTs.

Before you contract for EFT services or make your first electronic transfer, the institution must give you the following information in a format you can keep.

a summary of your liability for unauthorized transfers
the phone number and address for a contact if you think an unauthorized transfer has been or may be made, the institution's "business days" (when the institution is open to the public for normal business), and the number of days you have to report suspected unauthorized transfers
the type of transfers you can make, fees for transfers, and any limits on the frequency and dollar amount of transfers
a summary of your right to get documentation of transfers and to stop payment on a pre-authorized transfer, and how you stop payment
a notice describing how to report an error on a receipt for an EFT or your statement, to request more information about a transfer listed on your statement, and how long you have to make your report
a summary of the institution's liability to you if it fails to make or stop certain transactions
circumstances when the institution will share information about your account with third parties
a notice that you may have to pay a fee charged by operators of ATMs where you don't have an account, for an EFT or a balance inquiry at the ATM, and charged by networks to complete the transfer.

You also will get two more types of information for most transactions: terminal receipts and periodic statements. Separate rules apply to deposit accounts from which pre-authorized transfers are drawn. For example, pre-authorized transfers from your account need your written or similar authorization, and a copy of that authorization must be given to you. Additional information about pre-authorized transfers is in your contract with the financial institution for that account. You're entitled to a terminal receipt each time you initiate an electronic transfer, whether you use an ATM or make a point-of-sale electronic transfer, for transfers over $15. The receipt must show the amount and date of the transfer, and its type, like "from savings to checking." It also must show a number or code that identifies the account, and list the terminal location and other information. When you make a point-of-sale transfer, you'll probably get your terminal receipt from the salesperson.

You won't get a terminal receipt for regularly occurring electronic payments that you've pre-authorized, like insurance premiums, mortgages, or utility bills. Instead, these transfers will appear on your statement. If the pre-authorized payments vary, however, you should get a notice of the amount that will be debited at least 10 days before the debit takes place.

You're also entitled to a periodic statement for each statement cycle in which an electronic transfer is made. The statement must show the amount of any transfer, the date it was credited or debited to your account, the type of transfer and type of account(s) to or from which funds were transferred, the account number, the amount of any fees charged, the account balances at the beginning and end of the statement cycle, and the address and phone number for inquiries. You're entitled to a quarterly statement whether or not electronic transfers were made.

Keep and compare your EFT receipts with your periodic statements the same way you compare your credit card receipts with your monthly credit card statement. This will help you make the best use of your rights under federal law to dispute errors and avoid liability for unauthorized transfers.

Errors

You have 60 days from the date a periodic statement containing a problem or error was sent to you to notify your financial institution. The best way to protect yourself if an error occurs is to notify the financial institution by certified letter. Ask for a return receipt so you can prove that the institution got your letter. Keep a copy of the letter for your records.

Under federal law, the institution has no obligation to conduct an investigation if you miss the 60-day deadline.

Once you've notified the financial institution about an error on your statement, it has 10 business days to investigate. The institution must tell you the results of its investigation within three business days after completing it, and must correct an error within one business day after determining that the error has occurred. An institution usually is permitted to take more time — up to 45 days — to complete the investigation, but only if the money in dispute is returned to your account and you're notified promptly of the credit. At the end of the investigation, if no error has been found, the institution may take the money back if it sends you a written explanation.

An error also may occur in connection with a point-of-sale purchase with a debit card. For example, an oil company might give you a debit card that lets you pay for gas directly from your bank account. Or you may have a debit card that can be used for a various types of retail purchases. These purchases will appear on your bank statement. In case of an error on your account, however, you should contact the card issuer (for example, the oil company or bank) at the address or phone number provided by the company for errors. Once you've notified the company about the error, it has 10 business days to investigate and tell you the results. In this situation, it may take up to 90 days to complete an investigation, if the money in dispute is returned to your account and you're notified promptly of the credit. If no error is found at the end of the investigation, the institution may take back the money if it sends you a written explanation.

Lost or Stolen ATM or Debit Cards

If your credit card is lost or stolen, you can't lose more than $50. If someone uses your ATM or debit card without your permission, you can lose much more.

If you report an ATM or debit card missing to the institution that issues the card before someone uses the card without your permission, you can't be responsible for any unauthorized withdrawals. But if unauthorized use occurs before you report it, the amount you can be responsible for depends on how quickly you report the loss to the card issuer.

If you report the loss within two business days after you realize your card is missing, you won't be responsible for more than $50 of unauthorized use.
If you report the loss within 60 days after your statement is mailed to you, you could lose as much as $500 because of an unauthorized transfer.
If you don’t report an unauthorized use of your card within 60 days after the card issuer mails your statement to you, you risk unlimited loss; you could lose all the money in that account, the unused portion of your maximum line of credit established for overdrafts, and maybe more.

If an extenuating circumstance, like lengthy travel or illness, keeps you from notifying the card issuer within the time allowed, the notification period must be extended. In addition, if state law or your contract imposes lower liability limits than the federal EFT Act, the lower limits apply.

Once you report the loss or theft of your ATM or debit card to the card issuer, you're not responsible for additional unauthorized use. Because unauthorized transfers may appear on your statements, though, read each statement you receive after you've reported the loss or theft. If the statement shows transfers that you didn't make or that you need more information about, contact the card issuer immediately, using the special procedures it provided for reporting errors.

Overdrafts for One-Time Debit Card Transactions and ATM Cards

If you make a one-time purchase or payment with your debit card or use your ATM card and don't have sufficient funds, an overdraft can occur. Your bank must get your permission to charge you a fee to pay for your overdraft on a one-time debit card transaction or ATM transaction. They also must send you a notice and get your opt-in agreement before charging you.

For accounts that you already have, unless you opt-in, the transaction will be declined if you don't have the funds to pay it, and you can't be charged an overdraft fee. If you open a new account, the bank can't charge you an overdraft fee for your one-time debit card or ATM transactions, either, unless you opt-in to the fees. The bank will give you a notice about opting-in when you open the account, and you can decide whether to opt-in. If you opt-in, you can cancel any time; if you don’t opt-in, you can do it later.

These rules do not apply to recurring payments from your account. For those transactions, your bank can enroll you in their usual overdraft coverage. If you don’t want the coverage (and the fees), contact your bank to see if they will let you discontinue it for those payments.

Limited Stop-Payment Privileges

When you use an electronic fund transfer, the EFT Act does not give you the right to stop payment. If your purchase is defective or your order isn't delivered, it's as if you paid cash: It's up to you to resolve the problem with the seller and get your money back.

One exception: If you arranged for recurring payments out of your account to third parties, like insurance companies or utilities, you can stop payment if you notify your institution at least three business days before the scheduled transfer. The notice may be written or oral, but the institution may require a written follow-up within 14 days of your oral notice. If you don’t follow-up in writing, the institution's responsibility to stop payment ends.

Although federal law provides limited rights to stop payment, financial institutions may offer more rights or state laws may require them. If this feature is important to you, shop around to be sure you're getting the best "stop-payment" terms available.

Additional Rights

The EFT Act protects your right of choice in two specific situations: First, financial institutions can't require you to repay a loan by preauthorized electronic transfers. Second, if you're required to get your salary or government benefit check by EFT, you can choose the institution where those payments will be deposited.

For More Information and Complaints

If you decide to use EFT, keep these tips in mind:

Take care of your ATM or debit card. Know where it is at all times; if you lose it, report it as soon as possible.
Choose a PIN for your ATM or debit card that's different from your address, telephone number, Social Security number, or birthdate. This will make it more difficult for a thief to use your card.
Keep and compare your receipts for all types of EFT transactions with your statements so you can find errors or unauthorized transfers and report them.
Make sure you know and trust a merchant or other company before you share any bank account information or pre-authorize debits to your account. Be aware that some merchants or companies may process your check information electronically when you pay by check.
Read your monthly statements promptly and carefully. Contact your bank or other financial institution immediately if you find unauthorized transactions and errors.

FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL

GUIDANCE ON ELECTRONIC FINANCIAL SERVICES AND CONSUMER COMPLIANCE

INTRODUCTION

Federally insured depository institutions are developing or employing new electronic technologies for delivering financial products to improve customer service and enhance competitive positions. Some of those institutions have asked regulators questions regarding the application of existing consumer protection laws and regulations to electronic product delivery methods. It is clear from these questions that these institutions are uncertain about the appropriate manner to address electronic services under the existing regulatory framework. Accordingly, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision (collectively, the “Agencies”) are providing federally insured depository institutions with some basic information and suggested guidance pertaining to federal consumer protection laws and regulations and their application to electronic financial service operations. This issuance is intended to assess the implications of some of the emerging electronic technologies for the consumer regulatory environment, to provide institutions with an overview of pertinent regulatory issues, and to offer suggestions on how to apply existing consumer laws and regulations to new electronic financial services. The term “electronic financial service” as used in this guidance includes, but is not limited to, on-line financial services, electronic fund transfers, and other electronic payment systems. Online financial services, stored value card systems, and electronic cash are among the new electronic products being introduced in the market. Financial institutions are establishing Internet web sites that advertise products and services, accept electronic mail, and provide consumers with the capability to conduct transactions through an on-line system. Services and products can be accessed through personal computers connecting to the institution via proprietary software, commercial on-line services, and the Internet, or through other access devices including, for example, video kiosks and interactive television. Financial institutions should be advised that many of the general principles, requirements, and controls that apply to paper transactions may also apply to electronic financial services. This guidance letter contains two sections: 1) The Compliance Regulatory Environment, and 2) The Role of Consumer Compliance in Developing and Implementing Electronic Services. Examples relating to compliance issues are used for illustrative purposes; institutions are encouraged to use the concepts underlying these examples when implementing an electronic services technology plan. It should be understood that existing consumer laws and regulations generally apply to applicable transactions, advertisements and other services conducted electronically. It should also be understood, however, that not all of the consumer protection issues that have arisen in connection with new technologies are specifically addressed in this guidance. Additional communiqués may be issued in the future to address other aspects of consumer laws and regulations as the financial service environment evolves.

COMPLIANCE REGULATORY ENVIRONMENT

This section summarizes and highlights the most recent changes in the relevant sections of federal consumer protection laws and regulations that address electronic financial services, and notes other relevant provisions of law. This information is not intended to be a complete checklist for consumer compliance in the electronic medium. It does not address a number of open issues surrounding the application of consumer rules to new electronic financial services that are currently being considered by the appropriate agencies. It is critical that institutions providing electronic delivery mechanisms develop and maintain an in-depth knowledge of the relevant statutes and regulations. Moreover, it should be kept in mind that additional changes to relevant laws and regulations arising in response to the new electronic service technologies may occur. The rapid development of technology and new products will require updating of this information. Generally, the regulatory requirement that disclosures be in writing and in a form the customer can keep has been met by providing paper disclosures to the customer. For example, a bank would supplement electronic disclosures with paper disclosures until the regulations have been reviewed and changed, if necessary, to specifically allow electronic delivery of disclosures. Some of the consumer regulations were reviewed and changed to reflect electronic disclosures. These changes are summarized in this section. Also, attached to this guidance is a matrix entitled “Compliance Issues Involving Electronic Services” that highlights some of the principal compliance issues that should be considered by financial institutions when developing and implementing electronic systems. DEPOSIT SERVICES Electronic Fund Transfer Act (Regulation E) Generally, when on-line banking systems include electronic fund transfers that debit or credit a consumer’s account, the requirements of the Electronic Fund Transfer Act and Regulation E apply. A transaction involving stored value products is covered by Regulation E when the transaction accesses a consumer’s account (such as when value is “loaded” onto the card from the consumer’s deposit account at an electronic terminal or personal computer). In accordance with §205.4, financial institutions must provide disclosures that are clear and readily understandable, in writing, and in a form the consumer may keep. An Interim rule was 3 issued on March 20, 1998 that allows depository institutions to satisfy the requirement to deliver by electronic communication any of these disclosures and other information required by the act and regulations, as long as the consumer agrees to such method of delivery. According to the Federal Reserve Board Official Staff Commentary (OSC) §205.7(a)-4, financial institutions must ensure that consumers who sign-up for a new banking service are provided with disclosures for the new service if the service is subject to terms and conditions different from those described in the initial disclosures required under §205.7. Although not specifically mentioned in the commentary, this applies to all new banking services including electronic financial services. The OSC also clarifies that terminal receipts are unnecessary for transfers initiated on-line. Specifically, OSC §205.2(h)-1 provides that, because the term “electronic terminal” excludes a telephone operated by a consumer, financial institutions need not provide a terminal receipt when a consumer initiates a transfer by a means analogous in function to a telephone, such as by a personal computer or a facsimile machine. Additionally, OSC §205.10(b)-5 clarifies that a written authorization for preauthorized transfers from a consumer’s account includes an electronic authorization that is not signed, but similarly authenticated by the consumer, such as through the use of a security code. According to the OSC, an example of a consumer’s authorization that is not in the form of a signed writing but is, instead, “similarly authenticated” is a consumer’s authorization via a home banking system. To satisfy the regulatory requirements, the institution must have some means to identify the consumer (such as a security code) and make a paper copy of the authorization available (automatically or upon request). The text of the electronic authorization must be displayed on a computer screen or other visual display that enables the consumer to read the communication from the institution. Only the consumer may authorize the transfer and not, for example, a third-party merchant on behalf of the consumer. Pursuant to §205.6, timing in reporting an unauthorized transaction, loss, or theft of an access device determines a consumer’s liability. A financial institution may receive correspondence through an electronic medium concerning an unauthorized transaction, loss, or theft of an access device. Therefore, the institution should ensure that controls are in place to review these notifications and also to ensure that an investigation is initiated as required. Truth in Savings Act (Regulation DD) Financial institutions that advertise deposit products and services on-line must verify that proper advertising disclosures are made in accordance with all provisions of §230.8. Institutions should note that the disclosure exemption for electronic media under §230.8(e) does not specifically address commercial messages made through an institution’s web site or other on-line banking system. Accordingly, adherence to all of the advertising disclosure requirements of §230.8 is required. Advertisements should be monitored for recency, accuracy, and compliance. Financial 4 institutions should also refer to OSC §230.2(b)-2(i) if the institution’s deposit rates appear on third party web sites or as part of a rate sheet summary. These types of messages are not considered advertisements unless the depository institution, or a deposit broker offering accounts at the institution, pays a fee for or otherwise controls the publication. Pursuant to §230.3(a), disclosures generally are required to be in writing and in a form that the consumer can keep. Until the regulation has been reviewed and changed, if necessary, to allow electronic delivery of disclosures, an institution that wishes to deliver disclosures electronically to consumers, would supplement electronic disclosures with paper disclosures. Expedited Funds Availability Act (Regulation CC) Generally, the rules pertaining to the duty of an institution to make deposited funds available for withdrawal apply in the electronic financial services environment. This includes rules on fund availability schedules, disclosure of policy, and payment of interest. Recently, the FRB published a commentary that clarifies requirements for providing certain written notices or disclosures to customers via electronic means. Specifically, the commentary to §229.13(g)-1a states that a financial institution satisfies the written exception hold notice requirement, and the commentary to §229.15(a)-1 states that a financial institution satisfies the general disclosure requirement by sending an electronic version that displays the text and is in a form that the customer may keep. However, the customer must agree to such means of delivery of notices and disclosures. Information is considered to be in a form that the customer may keep if, for example, it can be downloaded or printed by the customer. To reduce compliance risk, financial institutions should test their programs’ ability to provide disclosures in a form that can be downloaded or printed. Reserve Requirements of Depository Institutions (Regulation D) Pursuant to the withdrawal and transfer restrictions imposed on savings deposits §204.2(d)(2) electronic transfers, electronic withdrawals (paid electronically) or payments to third parties initiated by a depositor from a personal computer are included as a type of transfer subject to the six transaction limit imposed on passbook savings and MMDA accounts. Institutions also should note that, to the extent stored value or other electronic money represents a demand deposit or transaction account, the provisions of Regulation D would apply to such obligations. LOAN/LEASING SERVICES Truth in Lending Act (Regulation Z) The commentary to regulation Z was amended recently to clarify that periodic statements for open-end credit accounts may be provided electronically, for example, via remote access 5 devices. OSC §226.5(b)(2)(ii)-3 states that financial institutions may permit customers to call for their periodic statements, but may not require them to do so. If the customer wishes to pick up the statement and the plan has a grace period for payment without imposition of finance charges, the statement, including a statement provided by electronic means, must be made available in accordance with the “14-day rule,” requiring mailing or delivery of the statement not later than 14 days before the end of the grace period. Provisions pertaining to advertising of credit products should be carefully applied to an on-line system to ensure compliance with the regulation. Financial institutions advertising openend or closed-end credit products on-line have options. Financial institutions should ensure that on-line advertising complies with §226.16 and §226.24. For on-line advertisements that may be deemed to contain more than a single page, financial institutions should comply with §226.16(c) and §226.24(d), which describe the requirements for multiple-page advertisements. Consumer Leasing Act (Regulation M) OSC §213.2(b)-1 provides examples of advertisements that clarify the definition of an advertisement under Regulation M. The term advertisement includes messages inviting, offering, or otherwise generally announcing to prospective customers the availability of consumer leases, whether in visual, oral, print, or electronic media. Included in the examples are on-line messages, such as those on the Internet. Therefore, such messages are subject to the general advertising requirements under §213.7. Equal Credit Opportunity Act (Regulation B) OSC §202.5(e)-3 clarifies the rules concerning the taking of credit applications by specifying that application information entered directly into and retained by a computerized system qualifies as a written application under this section. If an institution makes credit application forms available through its on-line system, it must ensure that the forms satisfy the requirements of §202.5. OSC §202.13(b)-4 also clarifies the regulatory requirements that apply when an institution takes loan applications through electronic media. If an applicant applies through an electronic medium (for example, the Internet or a facsimile) without video capability that allows employees of the institution to see the applicant, the institution may treat the application as if it were received by mail. Fair Housing Act A financial institution that advertises on-line credit products that are subject to the Fair Housing Act must display the Equal Housing Lender logotype and legend or other permissible disclosure of its nondiscrimination policy if required by rules of the institution’s regulator (OTS §528.4, FDIC §338.3, NCUA §701.31, FRB Fair Housing Advertising and Poster Requirements, 54 Fed. Reg. 11,567 (1989)). 6 Home Mortgage Disclosure Act (Regulation C) OSC §203.4(a)(7)-5 clarifies that applications accepted through electronic media with a video component (the financial institution has the ability to see the applicant) must be treated as “in person” applications. Accordingly, information about these applicants’ race or national origin and sex must be collected. An institution that accepts applications through electronic media without a video component, for example, the Internet or facsimile, may treat the applications as received by mail. Fair Credit Reporting Act The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (Public Law 104-208, §2408, 110 Stat. 3009 (1996)) amended Section 610 of the Fair Credit Reporting Act (15 U.S.C. §1681h), to allow consumer reporting agencies to make the disclosures to consumers required under Section 609 by electronic means if authorized by the consumer. Consumers must specify that they wish to receive the disclosures in an electronic form, and such form of delivery must be available from the credit reporting agency. Any participant in an electronic service system who regularly gathers or evaluates consumer credit information or other information about consumers for the purpose of furnishing consumer reports to third parties (for monetary fees, dues, or on a cooperative nonprofit basis) is considered a consumer reporting agency. In such cases, the participant must comply with the applicable provisions of the FCRA. MISCELLANEOUS Advertisement Of Membership (FDIC 12CFR §328) (NCUA RR 740) The FDIC and NCUA consider every insured depository institution’s on-line system top level page, or “home page”, to be an advertisement. Therefore, according to these agencies’ interpretation of their rules, financial institutions subject to §328.3 (NCUA RR §740.4) should display the official advertising statement on their home pages unless subject to one of the exceptions described under §328.3(c) (NCUA RR§740.4(c)). Furthermore, each subsidiary page of an on-line system that contains an advertisement should display the official advertising statement unless subject to one of the exceptions described under §328.3(c) (NCUA RR §740.4(c)). Additional information about the FDIC’s interpretation can be found in the Federal Register, Volume 62, page 6145, dated February 11, 1997. The official bank sign (FDIC §328.2), official savings association sign (FDIC §328.4), and NCUA official sign (NCUA RR 740.3) are currently not required to be displayed on an institution’s on-line system. 7 Fair Debt Collection Practices Act According to Section 803(2) of the Fair Debt Collection Practices Act (15 U.S.C. §1692a(2)), “communication” means conveying information regarding a debt directly or indirectly to any person through any medium. Financial institutions acting as debt collectors for third parties are permitted to communicate via electronic means, such as the Internet, to collect a debt or to obtain information about a consumer. In such instances, financial institutions must ensure that their communications and practices are in keeping with the requirements of the Act. Flood Disaster Protection Act The regulation implementing the National Flood Insurance Program requires a financial institution to notify a prospective borrower and the servicer that the structure securing the loan is located or to be located in a special flood hazard area. The regulation also requires a notice of the servicer’s identity be delivered to the insurance provider. While the regulation addresses electronic delivery to the servicer and to the insurance provider, it does not address electronic delivery of the notice to the borrower.

COMPLIANCE POLICY GUIDANCE

The following discussion provides specific interim compliance policy guidance regarding advertising, disclosures/notices, applications, stored value cards, and record keeping. This guidance is intended to discuss the regulations’ requirements as presently written in the context of the electronic financial services environment and, to the extent possible, to provide practical examples for application of this guidance. This guidance may have to be reconsidered and revised at such time as applicable regulations are amended or clarified. Institutions may however, find it useful to apply the concepts underlying the examples in this guidance to their own electronic financial service operations. The electronic financial services environment is dynamic thus, the guidance outlined in this letter could also evolve based on developments in technology and the continuation of deliberations regarding appropriate policies. Advertisements Generally, Internet web sites are considered advertising by the regulatory agencies. In some cases, the regulations contain special rules for multiple-page advertisements. It is not yet clear what would constitute a single “page” in the context of the Internet or on-line text. Thus, institutions should carefully review their on-line advertisements in an effort to minimize compliance risk. In addition, Internet or other systems in which a credit application can be made on-line may be considered “places of business” under HUD’s rules prescribing lobby notices. Thus, institutions may want to consider including the “lobby notice,” particularly in the case of interactive systems that accept applications. 8 Disclosures/Notices Several consumer regulations provide for disclosures and/or notices to consumers. The compliance officer should check the specific regulations to determine whether the disclosures/notices can be delivered via electronic means. The delivery of disclosures via electronic means has raised many issues with respect to the format of the disclosures, the manner of delivery, and the ability to ensure receipt by the appropriate person(s). The following highlights some of those issues and offers guidance and examples that may be of use to institutions in developing their electronic services. Disclosures are generally required to be "clear and conspicuous." Therefore, compliance officers should review the web site to determine whether the disclosures have been designed to meet this standard. Institutions may find that the format(s) previously used for providing paper disclosures may need to be redesigned for an electronic medium. Institutions may find it helpful to use "pointers2 " and "hotlinks3 " that will automatically present the disclosures to customers when selected. A financial institution’s use solely of asterisks or other symbols as pointers or hotlinks would not be as clear as descriptive references that specifically indicate the content of the linked material. Several regulations also require disclosures and notices to be given at specified times during a financial transaction. For example, some regulations require that disclosures be given at the time an application form is provided to the consumer. In this situation, institutions will want to ensure that disclosures are given to the consumer along with any application form. Institutions may accomplish this through various means, one of which may be through the automatic presentation of disclosures with the application form. Regulations that allow disclosures/notices to be delivered electronically and require institutions to deliver disclosures in a form the customer can keep have been the subject of questions regarding how institutions can ensure that the consumer can “keep” the disclosure. A consumer using certain electronic devices, such as Web TV, may not be able to print or download the disclosure. If feasible, a financial institution may wish to include in its on-line program the ability for consumers to give the financial institution a non-electronic address to which the disclosures can be mailed. In those instances where an electronic form of communication is permissible by regulation, to reduce compliance risk institutions should ensure that the consumer has agreed to receive disclosures and notices through electronic means. Additionally, institutions may want to provide information to consumers about the ability to discontinue receiving disclosures through electronic 2 A “pointer” is a declarative statement that refers to the location within the system at which additional important information begins. 3 A “hotlink” is an electronic connection between two or more electronic documents that are not in sequential order. 9 means, and to implement procedures to carry out consumer requests to change the method of delivery. Furthermore, financial institutions advertising or selling non-deposit investment products through on-line systems, like the Internet, should ensure that consumers are informed of the risks associated with nondeposit investment products as discussed in the “Interagency Statement on Retail Sales of Non Deposit Investment Products.” On-line systems should comply with this Interagency Statement, minimizing the possibility of customer confusion and preventing any inaccurate or misleading impression about the nature of the nondeposit investment product or its lack of FDIC insurance. Electronic Stored Value Products Electronic stored value products are retail payment products in which value is recorded on a personal electronic device or on a magnetic strip or computer chip in exchange for a predetermined balance of funds. Electronic stored value products may include stored value cards, smart cards, and electronic cash recorded on a personal electronic device, such as a personal computer. Electronic stored value cards can be either disposable or reloadable. Disposable cards are purchased with a specific electronic value embedded on the card that can be used for transactions until the electronic value is depleted. A reloadable card permits a user to increase, as necessary, the value on the card at an electronic terminal or device that accepts currency or that allows the user to transfer funds from an account to the card. The Federal Reserve Board of Governors, in its Report to the Congress on the Application of the Electronic Fund Transfer Act to Electronic Stored-Value Products, for purposes of the study, describes electronic stored value products as retail payment products intended primarily for consumer payments that generally have some or all of the following characteristics: • A card or other device that electronically stores or provides access to a specified amount of funds selected by the holder of the device and available for making payments to others. • The device is the only means of routine access to the funds. • The issuer does not record the funds associated with the device as an account in the name of (or credited to) the holder. The application of certain consumer protection laws and regulations to these products has not been determined. However, financial institutions that issue electronic stored value products may wish to provide information to consumers about the operation of these products to enable consumers to meaningfully distinguish among different payment products, such as stored value cards, debit cards and credit cards. Additionally, consumers likely would find it beneficial to receive information about the terms and conditions associated with the use of electronic stored value products, to ensure their informed use of these products. Some financial institutions that issue stored value products have provided consumers with a variety of disclosures including: 10 • federally insured or non-insured status of the product, • all fees and charges associated with the purchase, use or redemption of the product, • any liability for lost or stolen electronic stored value, • any expiration dates, or limits on redemption of the electronic stored value, and • toll-free telephone number for customer service, malfunction and error resolution. FDIC General Counsel Opinion No. 8, dated July 16, 1996, states that insured depository institutions are expected to disclose in a clear and conspicuous manner to consumers the insured or non-insured status of the stored value products they offer to the public, as appropriate. Some financial institutions have also printed some of this information, such as expiration date and telephone number, directly on the card. Financial institutions should also consider establishing procedures to resolve disputes arising from the use of the electronic stored value products. Record Retention Record retention provisions apply to electronic delivery of disclosures to the same extent required for non-electronic delivery of information. For example, if the web site contains an advertisement, the same record retention provisions that apply to paper-based or other types of advertisements apply. Copies of such advertisements should be retained for the time period set out in the relevant regulation. Retention of electronic copies is acceptable.

THE ROLE OF CONSUMER COMPLIANCE IN DEVELOPING AND IMPLEMENTING ELECTRONIC SERVICES

When violations of the consumer protection laws regarding a financial institution’s electronic services have been cited, generally the compliance officer has not been involved in the development and implementation of the electronic services. Therefore, it is suggested that management and system designers consult with the compliance officer during the development and implementation stages in order to minimize compliance risk. The compliance officer should ensure that the proper controls are incorporated into the system so that all relevant compliance issues are fully addressed. This level of involvement will help decrease an institution’s compliance risk and may prevent the need to delay deployment or redesign programs that do not meet regulatory requirements. The compliance officer should develop a compliance risk profile as a component of the institution’s online banking business and/or technology plan. This profile will establish a framework from which the compliance officer and technology staff can discuss specific technical elements that should be incorporated into the system to ensure that the online system meets regulatory requirements. For example, the compliance officer may communicate with the technology staff about whether compliance disclosures/notices on a web site should be indicated 11 or delivered by the use of “pointers” or “hotlinks” to ensure that required disclosures are presented to the consumer. The compliance officer can also be an ongoing resource to test the system for regulatory compliance. Compliance officers will need to review their existing compliance policies and procedures and make appropriate modifications based upon the types of products, services, and operating features of the institution’s online system. The compliance program may not need to be revamped, but merely extended to address the new level of technology employed by the institution. Staff should be trained and a monitoring system implemented to review continually the content and operation of the online programs to prevent inadvertent or unauthorized changes that may affect compliance with the regulations. Management should review and revise the institution’s electronic financial services as the regulatory environment changes and electronic delivery mechanisms evolve. This will help to ensure that the institution maintains an effective compliance program.

CONCLUSION

This guidance provides information for institutions to consider during the design, development, implementation and monitoring of electronic banking operations. Financial institutions are responsible for ensuring that their electronic banking operations are in compliance with applicable laws, regulations, and policies, including both federal and state provisions. Financial institutions need to adapt to a changing technological environment so that compliance with consumer protections laws are maintained, while allowing the financial institution industry to continue to make effective use of new technology. Due to the continuing evolution of the technological environment and the associated regulatory environment, proposed changes to federal laws and regulations will undoubtedly affect the content of this letter in the future. The regulatory agencies are interested and willing to discuss these issues with financial institutions during the design and development of their electronic banking programs. Additionally, regulatory agency Internet sites may also contain information helpful to financial institutions.

XO___XO Embracing change: financial informatics and risk analytics

Enterprise design pattern for managing metadata in support of financial analytics packages. The complexity of financial modelling typically requires deployment of multiple financial analytics packages, drawing data from multiple source systems. Business domain experts are typically needed to understand the data requirements of these packages. Financial product innovation and research advances imply that data requirements are chronically unstable. These forces of complexity and instability motivate a software architecture that exposes financial metadata declaratively , thus allowing on-the-fly metadata modifications by domain experts, without provoking a costly design–develop–test–deploy life cycle.

Developments in digitisation, software and processing power and the accompanying data explosion create significant alterations, dilemmas and possibilities for enterprises and their finance function. The article discusses a model for understanding data, information and knowledge relationships. We apply the model to examine developments in strategy, organisational and cost structures, digitisation, business analytics, outsourcing, offshoring and cloud computing. We argue that organisations need to be sensitised to different types of knowledge, the challenges in creating and applying that knowledge, and be more circumspect about what can be achieved through advances in information-based technologies and software. We point to both the potential of and the complexities presented by Big Data in relation to the finance function generally and to management accounting information provision specifically. We suggest that ‘Big Data’ and data analysis techniques enable executives to act on structured and unstructured information but such action must recognise that the traditionally presumed sequential and linear links among corporate strategy, firm structure and information systems design are no longer in play. Additionally, cost structure changes are affected by developments in how data, information and knowledge can be utilised. We discuss the outsourcing and offshoring of work and their data, information and knowledge ramifications as well as those related to cloud computing. We conclude that the possibilities for the digitally enabled business create a range of ‘information literacy’ challenges as well as new possibilities for accounting information providers.

Data driven: researching the future of financial trading

With automated trading systems transforming the face of financial trading, research into how to optimize the vast quantities of data being produced has never been more important . "We know that financial informatics and data science are areas where there will be a growing need for new talent in the future. "Trading in financial markets is increasingly automated; where human traders used to haggle over prices to agree a deal, now computerized automated trading systems often do that job at lightning speeds.

"We are generating more data in one day than we did in the course of centuries past. This surge in data creation clearly demonstrates the value and necessity for a post in Financial Informatics and Data Science, and we are delighted to be working in this capacity."

The integration of informatics and their frequently heterogeneous components

Now more than ever, the financial world is inseparable from the world of informatics. This is especially the case in the area of banking where the integration of informatics and their frequently heterogeneous components, represents strategic stakes. Added to the traditional constraints of operational procedures there are the processing requirements, in real time, of financial information in order to satisfy an increasingly demanding clientele.

Informatics have radically modified the concept of finance and no longer represent for banks just a means of operational performance, but a strategic motivation of another dimension.

With the creation of new instruments, management techniques have undergone an analogous and simultaneous evolution to that of financial informatics. The rationalization of portfolio management procedures and styles such as centralized management has enabled managers to access pertinent information 'on-time'. With more time at his disposal, the portfolio manager possesses the necessary tools to increase his performance, conquer new sectors and develop client loyalty.

The portfolio manager, on the basis of an infrastructure rich in raw data allowing him to characterize his environment, carry out transactions, memorize and control, can immediately take the right decisions to attain better results.

Since all software applications result from a methodology, it is absolutely necessary for a bank who wants to acquire a portfolio management system to choose a software with an architecture corresponding to the following axes, needs and questions:

FilterThe criteria required for an optimal selection are numerous:

nl What style of management should be used?

n In what instrument?

n In what currency?

n For what amount?...- etc.

Only a software package with a filter, making it possible to cross-assemble this selection according to a multicriteria approach, can represent an appropriate reply to the necessity to structure the investment procedure, thus facilitating its quantification.

StrategiesStrategies are at the core of portfolio management procedures. They are vital because they help the manager to position himself with regard to his investment plan and take any necessary corrective steps (such as risk cover, speculation, repositioning, safeguard or investment).

According to the type of organisation, large, medium or small, bank or investment company managers have at their disposal a list of recommendations created by their internal financial analysts, or a list of recommendations of external origin. For the utmost effectiveness, this recommendation activity must also be integrated in the global procedure, allowing an automated choice of instruments.

Management decisions are materialized by sale and purchase orders. These bulk orders will be generated automatically by the so-called 'rebalancing' procedure. An efficient system will allow protagonists to control and intervene in order to guarantee execution in line with these decisions.

PerformanceCalculation of the realized performance and the possibility to project evaluation of this performance represent another vital aspect of a portfolio management software. It should be possible to carry out these calculations in real time or periodically and for them to be expressed in an unlimited number of currencies.

Modern concepts integrate the performance calculation standards (time weighted return) in force in the various financial markets.

SecurityFor total effectiveness, security should be implemented within the broader administrative context of the system. It should be defined at the functionalities and data level. Access rights and authorizations should be accorded for a given area, with additional limitation for certain specific tasks.

NavigationA friendly and ergonomically designed environment is crucial to ensure maximum ease in navigation, hence providing more transparent display of data.

To conclude, in the face of the constant dynamics of financial environments, of the ever-increasing volume of data to be handled, portfolio managers want a specialized software to be rapid, easy to use and of high efficiency. With ERI the OLY-PMS (Portfolio Management System) solution is an integral part of the OLYMPIC Banking System product. Consequently, the portfolio managers benefit from all the existing operational and decisional capabilities, thus affording genuine data processing in real time.

Real-time information, real-time visibility

Everyone will remember the well-publicised collapse of Barings Bank. What was not made quite so public was the fact that it took most banks weeks to finalise their global position post Barings liquidation. This was because there were no means to automatically consolidate all the information together from the various different branches and subsidiaries, there was no one single real-time view of liquidity!

Delivering value in an increasingly competitive world
Banks today need to make decisions quickly, the Barings disaster is a classic example of the lack of real-time access to information. Having information fast, which is up-to-date and accurate will make the difference to a bank's ability to survive in this increasingly competitive world. It's quite simple, banks can only trade their excess liquidity if they are aware that such funds are actually available!

Today, it is not uncommon for banks to offer a variety of services such as currency dealing, multiple currency settlement, trading of various financial instruments, equity and custody trading as well as other additional services. Until recently major clients, such as financial institutions, would be happy with information daily or up-to-date give or take an hour or so, but this is all changing. Clients will 'shop' around for the most competitive deal and are less loyal and much more dema- nding. And, unless banks improve their services they will loose their clients to those that do. The issue is real-time visibility for both the banks and their clients to enable quick and informed decisions to avoid a recurrence of the Barings episode as well as take advantage of intra day trading opportunities.

Speed, accuracy of information and integrated services, backed by guarantees through a service level agreement are the core elements in the game plan to gain, retain and sustain satisfied clients.

This article explores some of the issues that are preventing banks from providing these services to their clients. It looks at the changing face of the client and provides one answer to effectively manage Intra and Inter-bank trading.

The need for real-time integrated information
The problem that bank's face, is that so many of the services outlined above are offered by different divisions and therefore tend not to be integrated at the client level. Typically banks receive this information once a day and often this is not a consolidated view. The information is often buried in disparate computer databases, accessed only by an overnight batch-run. This is counter-productive to the overall commercial objectives of banking. Banks must be able to provide a range of financial services that can be tailored to the client; allows an integrated picture of the clients business and exposure to the bank; provides easy, low cost online access to services, and most importantly provides up-to-the-second information.

Decisions that will maximise operations & profitability
The reason this is so important is that today's client is very sophisticated. Clients are becoming very demanding, in our competitive business environment, they need to maximise operations and profitability. For example, financial institutions, such as insurance companies and fund managers, have large sums of liquidity surplus to current daily requirements. These organisations need real-time updates on their projected cash liquidity to enable them to maximise profitability through intra-day investments.

Gaining global visibility to effectively manage rapidly changing circumstances
In addition, the need for one global view is paramount to the client. Traditionally, on-line access to a bank's services has been provided through proprietary systems and networking. This has made it difficult for clients to move to another bank, as there have been cost implications, as well as the upheaval and time involved to implement another banking system.

The expansion of web technology over the last few years is rapidly changing this. The Internet, extranet, or Intranet are providing a common low cost way of communicating between client and provider, and browser access is becoming the standard means of access. The benefit of using web technology is significant in keeping costs down as the nature of the web means it is easy to retrieve information from any organisation. The universal nature of the Web allows access from anywhere in the globe.

Offering a tailored solution
The ability to view a client with all aspects of its business is beneficial to both the bank and the client. The bank can better understand the various risks, can sweep balances between accounts whether one or multiple currencies, can net obligations across financial instruments, and can aggregate pledged collateral across financial instruments. The client can benefit similarly but in addition can find that 'pooling' of collateral and credit lines, and obligations will reduce the cost of doing business with the bank. The ability to consolidate, by currency, and geographic region will assist with immediate risk management.

Most banks offer a range of services to clients but they are not necessarily tailored to the client. Tailored services will potentially maximise returns. A consolidated view of a client's position will assist it to understand its global situation. A key factor to build into facilities that are on offer is to provide a consistent means of access for the client. Today, with web technology the task is easier.

Sharing Nostro account information between banks
As already stated, the key is that all of these facilities, are only really beneficial if all the information is real-time. Systems and information operated and controlled internally can be made real-time at the discretion of the bank. The problem banks face is the open access to their information, in real-time, held at another bank. Real-time Nostro account information across currencies is a key piece of processing missing today.

Nostro account information forms a fundamental building block for many intra- and inter-bank transactions. By its nature, Nostro account information needs to be accurate, secure and available to those whose profits depend on it. The fact that it could only be accessed by a daily batch-run motivated several international banks to define a standard means of exchanging real-time Nostro data.

Gresham Financial Services (GFS), a major player in the Banking Operations and Payments market was the catalyst in this partnership to help define a standard mechanism for exchanging Nostro information between banks. As a result, a revolutionary new product has been developed, NostroDirect. NostroDirect will provide the information necessary to improve risk management, reduce the cost of collateral and liquidity to support foreign exchange settlement processes, and it will demonstrate to regulators that action is being taken to reduce settlement risk. Nostro direct enables fast secure access to Nostro information via the Internet or any IP network.

How does NostroDirect work?
Nostro account information can be accessed via a simple web browser or an automated client application on demand. NostroDirect can support intra-day nostro reconciliation systems, real-time cash management systems, and real-time risk management systems. The automated client application streams intra-day Nostro reconciliation continuously through the day enabling discrepancies to be identified promptly, and the day's reconciliation to be completed by early evening rather than the next day. This significantly reduces the period of settlement risk.

A transaction time-stamp indicates the actual time that the account was credited. This allows the accurate measurement of settlement exposure of a client, by comparing when payments are made, versus when payments are received. This is important for risk management and allows credit lines and collateral requirements to be set based on the true intra-day position, rather than the traditional end of day measurement. Even better cash and risk management is possible when aggregating information across various currencies and business units which supports centralisation of management functions.

The software satisfies the need for client access to their information in the way they want it and when they want it. The information is provided in a standard format using XML over IP and allows the client to automatically route the information received to back office systems for further straight through processing

The software also has web-enabling capability as standard for the distribution of information over a web network ; an Intranet, VAN, or even Internet. Connection to in-house systems can be achieved through any host adapter or Enterprise Appli- cation Integration (EAI) software, as long as it supports synchronous connectivity.

The future of banking
The move to making decisions based on up-to-the-minute information will significantly improve decisions, reduce errors and risks, and therefore have a positive impact on the 'bottom line.' In addition, real-time information combined with modern technology will allow new services to be created. In today's complex and changing world, NostroDirect provides the communication and visibility required by Banks wishing to take a more proactive approach to optimising their treasury operations. NostroDirect is a classic example of how Gresham Financial Services can deliver appropriately focused products and services to banks to deliver a competitive advantage to their clients.

Automated dealing

Internet-enabled trading systems are a major innovation in the way financial markets are traded

Using the internet as a low-cost communication channel between the bank and its corporate customers and branches will prove to be as much of a revolution as the introduction of automated dealing over the last decade.

Further, this revolution is set to occur in the way the markets are traded as well as the way that banks organise their businesses internally. Behind the Euro and Y2K headlines, there have been great changes taking place in the automated global trading market. EBS and Reuters, which were the first companies to put automated FX matching services on the interbank desk, have changed the way traders trade and the way the interbank market functions. I expect the evolution of electronic trading by utilising Internet technologies will have a greater impact on the traditional corporate trading model says Debbie Fuller, of Cognotec, who have been producing automated trading systems for the foreign exchange and money markets for ten years. It is now accepted by the banking community that automated trading brings reduced costs as computing power replaces human effort, reduced levels of errors and enhanced level of connectivity between the treasury department with its internal and external customers.

However, automated dealing changed the way the interbank market functioned as well as the way that dealers did their jobs. Today, the convergence of the most cutting edge automated dealing technology and the data-delivery capacity of the Internet will do the same for the way banks access their client base - and the operation of the market as a whole.

The most important immediate effect of using Internet-based technology is to lower the cost of entry to the market. The expense involved, errors and volume constraints have hitherto hampered the development of automating dealing for many smaller banks - especially in relation to their client and branch-related activities. As a result, client dealing functions have not been fully integrated into the banksÕ broader transaction environment. Consequently, efficient information gathering for client and risk management purposes, and the establishment of enterprise-wide straight through processing have been difficult to implement.

This conundrum can be solved - at a price. Many larger institutions have made the technology investment necessary to take as much human intervention as possible out of client and branch dealing transactions. One solution they have used is Cognotec's AutoDeal. AutoDeal has been successfully established as an industry standard in the provision of automated dealing technology and is in use by banks like UBS, Royal Bank of Canada and Lloyds Bank.

But AutoDeal, like its competitors, requires the installation of both hard and software on site as well as the payment of an up-front license fee and annual maintenance charge. This meant that the benefits of automation were mainly confined to larger organisations. However, the Internet allows the cost of automating to be radically reduced. A new version of the service, AutoDeal LITE, is maintained by Cognotec on a central server.

The bank has its own service on the server which is branded with the bankÕs corporate identity. The bank's customers and dealers access the bank's site on the AutoDeal LITE server as if accessing the bank itself - the service therefore appears seamless to users at both ends. Instead of an up-front fee, the bank pays a monthly maintenance fee and a 'per deal' transaction charge. All requests from the bank's clients are automatically checked by the system. The request is compared against the client and currency limits set by the bank. Any request which fails a limit is automatically routed to a dealer for authorisation and pricing. If the limits are not exceeded, the rates requested can be generated automatically or referenced to a dealer who can review the price before quotation. On the clientÕs acceptance of the rate a unique deal number is generated and an electronic deal ticket generated which interfaces with the banks internal systems. The 'per deal' transaction fee means that the cost of using the service is directly related to the volume of business which the bank has. As the service is fully automated, the bank can transact many more deals without increasing its sales staff. One bank using the service was recently able to close one sales office and merge two others, while enjoying higher volumes of business.

The key to AutoDeal LITE's cost effectiveness is the harnessing of Internet technologies with the highest levels of security. It is now acceptable to execute millions of dollars worth of business over the internet because security standards are now so evolved. Digital certificates, encryption techniques and intranet and extranet network options have made the Internet a viable delivery channel for dealing business,asserts Fuller.

The issue of how 'safe' the Internet is has needlessly held back some organisations from fully-exploiting its capabilities as a low-cost communications channel. These concerns are natural. The concept of proof of identity is one of the pillars upon which organised society was built. Verification of identity is particularly vital in the area of commerce because it creates a foundation for reliable, trustworthy communication between buyer and seller. These principles are no less important in Internet-based transactions - where deals previously made in person are now occurring on-line.

Secure digital identification is one solution which is reliable, easily obtained and easy-to-use. Cognotec uses VeriSign, widely regarded as the world's leading Certification Authority in the Internet arena, to ensure secure access to the AutDeal LITE service. VeriSign is also the worlds most widely used security standard. For Internet-based transactions VeriSign digital certificates provide bank-level security in a number of ways. These include:

n Allowing each party to be confident of the other's identity - this applies to individual users, organisations, and providers of software and content.

n Verifying message and content integrity - a message, document, software program or content file digitally ÒsignedÓ and validated with VeriSign Digital ID technology means it has not been wilfully or accidentally corrupted since it was initially signed.

n Ensuring privacy: - VeriSign Digital Ids work in conjunction with public-key encryption to encrypt a message for specific recipients.

The security package used by AutoDeal LITE comprises a global server ID - a secure sockets layer between the client's browser and the AutoDeal LITE server. This provides server authentication (that the bank's site is actually owned by the bank), client identification and data encryption. It also uses digital Certificates which the user bank issues to authenticated clients. In subsequent communications, the Certificate guarantees to the bank that the client is who they are claiming to be.

Now that security concerns have been addressed, all market participants can enjoy the internal efficiencies internet-based trading offers. A further benefit to some banks, particularly early-adopters, will be the access provided to new markets. One element of the internet-based trading system which is destined to have a considerable impact on market participants is 'liquidity Linq'.

In the current market environment of tight spreads allied with declining liquidity, a trading process which allows greater price predictability and lowers market risk is to be welcomed. Liquidity Linq achieves this by allowing banks who nominate themselves to be price makers, or liquidity providers, to make a market to other AutoDeal LITE banks. Thus price takers can offer a broader range of currency to their customers and branches without assuming market risk. However, there is no element of compulsion - each bank decides on the counterparties with which it wants to deal.

From the price makers' point of view, Liquidity Linq allows the bank to increase its market penetration by leveraging its local market knowledge and offering this expertise to other AutoDeal LITE users. The counterparty pairing is also automated through the browser-based service, saving time to both sides of the deal. It also provides a method of offsetting the market risk the price maker might be assuming in other areas of its trading activities.

From the price takers point of view, they can quote a rate to their client safe in the knowledge that the price quoted by the market maker won't change before the price taker is ready to transact the deal. This is achieved by significantly speeding up the trading process. Thus the risk assumed by the price taker is reduced and the price taker's margin is instantly more predictable. As a result, the price taker can refocus its sales technique toward enhanced customer service and more complex risk management.

Further, the price taker can use AutoDeal LITEs intelligent pricing engine to automatically quote a price to their client using the parameters specific to that client. However, again there is no compulsion, as at all stages of a trade a dealer can intervene if preferred.

Liquidity Linq will prove to be an effective market tool enabling high-volume transactions with minimal impact on short-term market prices. Not only is the quote to the end-user significantly speeded up, and therefore the banks potential turnover of business greatly enhanced, but both sides of the deal - the price maker and the price taker - are both sure of transacting their trade at the price agreed.

Internet-based trading will prove to be a significant market advantage for banks dealing in low-liquidity, high volume conditions which characterize the leading European currencies. Overall it is an example of how internet-enabled technologies - when allied with market experience and a high level of security - can enhance a bank's competitive position and broaden its universe of available currency markets and trading partners.

The electronic trading revolution

Front Capital Systems, a provider of real time trading technology and related services, has recently launched a fixed income trading platform offering connectivity to electronic bond and derivatives markets, with analytics and risk management. Here, Front's Andreas Thatcher and John Mooren* outline their views on the way fixed income trading is transforming and how that development differs from the equity markets...

We are witnessing a revolution in the fixed income markets. The rapid migration of telephone based fixed income trading to electronic marketplaces is developing at three different levels: voice brokers are turning into electronic platforms such as eSpeed and ETC (electronic-only brokers are also growing, such as Brokertec); inter-dealer trading is moving to exchanges including MTS, Eurex Bonds, SWX; and, albeit slowly, customer flow is moving to the web, to platforms such as TradeWeb, BondVision and to single bank web sites. This trend is dictating the way fixed income markets are traded and is increasing demands on the technology.

The main consequence of the electronic trading revolution is greater efficiency. This arises in a number of ways. For the buy side, electronic order entry and trade confirmation, transparent prices, centralised counter parties and the potential for cheaper clearing can all enhance market efficiency. On the wholesaler side, these benefits can be complemented by automating the dealing, funding and hedging process, allowing current businesses to handle more trade flow. These advantages can enhance profits directly by lowering operational costs and reducing capital charges.

This movement of markets into electronic media is accelerating. Trading volumes are increasing, and electronic markets are consuming, or threatening to consume, almost all asset classes. Fixed income traders already have bonds, futures, repos, loans, deposit, and fx markets available electronically.

The pace of these changes has left dealers with quite a challenge. They have already invested in pricing and risk management systems and quoting engines. Now they must incorporate typically three to five electronic marketplaces for a range of products, from bonds to futures. Each of these markets requires integration and an order entry and quoting tool, typically supplied by the market. This proliferation of front-end systems not only crowds the traders' computers screens, but brings the resulting 'IT Spaghetti' to boiling point. How can banks achieve straight-through-processing and automated processes when each step is built, implemented and managed separately?

Yet, the pressure to automate the process is severe. Traders and their clients expect electronic execution to be faster than it ever was. Customers want speed and transparency when trading, and banks are trying to make their client relationships more efficient. At the same time, banks want to leave their trading options open, with links to as many platforms as possible.

Cleaning up the spaghetti can be solved with current technology. However, there is a further consideration to be made.

Uncertainty prevails as the markets develop
Revolutionary change creates uncertainty. Although the nascent fixed income electronic marketplaces are already established, the high number and variety of exchanges suggest that numerous growing pains are still in store. There is some suggestion that the development of the equity markets, aside from being partly responsible for the pace of early development of the fixed income markets, can provide some kind roadmap for the future. However there are a number of ways in which the new markets are likely to diverge. Among questions that are still outstanding:

A. With the complexity of interest based products requiring more analytical tools when trading, can market-making and connectivity technology be adapted, or will a new breed of trading platform emerge?

B. Can exchanges handle the proliferation of instruments in the interest rate world and will instruments conform to find liquidity on exchange?

C. Will the brokers, who have quickly adapted to the electronic conditions, survive or will they be driven out by the search for cheaper and more efficient clearing methods?

D. Will the fixed income 'pricing model', based on bid-offer spreads, make way for the commission model prevalent in the equity markets?

E. As bonds are inter-listed among markets, will consolidation create "super" exchanges, or will exchanges differentiate by incorporating other asset classes?

Waiting for these questions to be resolved means missing the opportunities fixed income revolution provides. How can a business invest in this uncertainty?

The biggest global banks have already started to invest, mostly due to the opportunity cost of not investing early and giving up market share. This provides an advantage to these players and is likely to lead to the further development of exchanges and ECNs, but does little to further the operations of smaller banks and the resulting market liquidity.

A number of software entrepreneurs have stepped in by developing front-end tools to reduce the temperature of the IT spaghetti. These solutions typically are restricted to connectivity to electronic markets. Many of the solutions are, like the markets themselves, transported equity functionality. The difficulties here are the unique features of the new fixed income markets: multi-market quoting of the same instrument, the greater analytical demands in pricing and hedging fixed income instruments, and the need to quote in multiple formats, including price, yield, and spreads.

Moreover, these connectivity tools are typically restricted to particular markets and their instruments, allowing banks to quote and trade, but not to hedge or to fund their positions. Also, they still leave the greatest pain for all banks: the costly inefficiencies of disparate pricing, order management, trading and risk management systems.

The reason for the continued hesitation is clear. Changing a front-end trading tool is much cheaper and less intrusive than replacing an entire pricing, quoting and trading infrastructure every time the trading tool is superseded. Clearly the uncertainty in these markets is considered enough of a risk to let the IT spaghetti boil and to forego large productivity gains. This need not be so.

Uncertainty does not necessarily create risk
Just as the development in the fixed income markets has been technological, we should look to technology for the solution. In this case, banks investing in market making or electronic trading tools for fixed income markets should prize versatility, which in effect is avoiding the issues mentioned above altogether.

First, any trading tool should be exchange independent, in fact aggregating multi-listings. This will prevent banks from having to take a view on consolidation in the industry and on the future pools of liquidity. By being both market independent and an aggregator, banks will have access to more liquidity than the individual markets themselves.

Second, the trading infrastructure must be able to handle a wide range of instruments, both in pricing and execution. Integrated businesses may be quoting and hedging instruments other than bonds. These include swaps, futures, repos, equities, foreign exchange and commodities. Some brokers and some traders argue that illiquid or complex products can only be traded over the telephone. In fact, every type of product can be traded easily and efficiently electronically. The difference between liquid and illiquid and vanilla and complex products is the degree of interaction that has to take place between the buyer and seller. Illiquid and complex products often need to be defined before they are traded, but this negotiation can happen electronically. The system should be prepared to price, quote and trade any instrument.

Third, the same technology should be able to (and banks must be prepared to) automate the entire process of pricing, execution, and market making. Automation will allow traders to handle more deal flow, to take advantage of opportunities through arbitrage, and to attain straight-through-processing (STP). STP will be an inevitable consequence of markets moving on-screen; the advent of electronic fixed income trading has shown many institutions just how far they are from seamless transactions.

Fixed income electronic markets offer productivity gains for banks and the chance to improve profits in a continuously lower margin business. However, the current environment is full of uncertainty, preventing banks from achieving key efficiencies such as market aggregation, cross asset capabilities and STP. But with flexible enough systems, banks can invest in and benefit from electronic markets without assuming the risks.

sharper focus on technology
And

Redefining the sell side
strategic customer value proposition

The technology used by sell side firms to provide e-business solutions for their institutional customers has had a spotty record over the past few years. These technologies-which form the backbone of various e-commerce strategies in the industry-are by nature complex. They've included Internet and extranet communications among firms, desktop integration, and direct connectivity to a rapidly increasing number of liquidity pools. Perhaps unsurprisingly, the success of single-dealer and multi-dealer institutional investor Web sites has been poor.

Unlike individual investors, institutional investors often deal with as many as 100 brokers, and it is logistically impossible for an investment manager to find time to visit all these single-dealer Web sites to gather information, compare data, or trade. In response, some sell side firms formed consortiums to offer multi-dealer hubs, or syndicates from which the investment manager can gather commingled information from contributing broker/dealers. Today, however, successful content syndicates are still quite rare.

Thankfully, connectivity between investment managers and broker/dealers order management systems is expanding, mostly as a result of the Financial Information Exchange (FIX) protocol. Firms are using electronic messaging for orders, executions, indications, and allocations. However, since the bulk of this traffic travels over leased lines, it is almost prohibitively expensive. (Broker/dealers have to purchase-and maintain-one dedicated line for every customer.) Thus both the message delivery and types of messages delivered should, and probably will, be improved in the future. For now, however, sell side firms continue to be under pressure from a number of unmet business needs. They must continue to find technological solutions that will improve customer intimacy, lower costs, and increase trade flow.

Today's corporate customers expect more value at a better price, especially as technological developments accelerate delivery and heighten performance expectations. Your typical institutional investor is a man under siege. As he diversifies his portfolio, seeking to manage growth and risk, he begins to trade new and various financial instruments. And in doing so, he exponentially increases the number of corporate sales people calling on him, anxious to make trade recommendations, give quotes, or offer access to the latest IPO. At the same time, institutional investors' direct electronic connectivity to an exploding number of liquidity pools has the potential to slice the broker out of the equation entirely, disintermediating him.

Given such pressures, one solution is to redefine the customer value proposition, mostly through the delivery of a particular firm's core competencies. In this way, the institution adds unique value to the services offered to customers, and maintains a competitive distinction in a crowded marketplace.

To deliver diverse portfolio management through a single point of contact requires desktop connectivity for the distribution of real-time applications, as well as the delivery of cross-asset trade functionality. This business need is forcing sell side institutions to define a new strategic customer value proposition: the Distributed Front Office.

The concept of the Distributed Front Office (DFO) is simply defined: it extends the power and functionality of the trading floor beyond the four walls of the institution. Firms leveraging this new proposition add customer value through improved customer management and process efficiencies, all while increasing trade flow.

The Power of Application DistributionImagine being able to take a firm's research, analysis, trade ideas, and proprietary cross asset analytics and then distribute them in real-time directly to a customer's desktop, then negotiate the trade and execute it-for the best price, of course-by selecting from a number of liquidity sources.

As an example, let's say a global investment bank wants to enable the electronic transmission of pricing a two-year vanilla swap to an institutional investor. When the sales desktop is electronically shared and market data is flowing in real time to the calculator, pricing is communicated immediately and trade decisions are made that much more quickly. By offering a variety of simple and more complex instruments, a firm's revenues can be improved by the resulting increase in average margin. Add to this the savings realised when a single account manager can pitch more products through a uniform Web and desktop presentation.

Any firm that adopts this strategy will truly have a competitive edge. It can offer multi-asset class trading functionality from a single screen, simply by allowing its various trading desks to inter-operate. Here's an example. To execute and hedge a simple vanilla swap, a number of markets need to be accessed. First, several short-term interest rate futures contracts have to be traded to hedge. Or, a bond trade is made to hedge the notional over the term of the swap. Then a repo needs to be executed to finance the bonds bought or sold.

Today, such trades are completed by a combination of old and new technologies run off disparate platforms, where trade information and pricing is shared through the simultaneous use of telephones and electronic distribution. But what if there was technology that could unify the trading of multiple instruments using a single platform and screen?

Here's one more example. Let's say a bank wished to add value for a hedge fund, corporate treasurer, or asset management customer by routing the trade to the liquidity pool with the best bid/ask price. This can only be accomplished if the bank de-fragments the increased number of liquidity sources across asset classes. Thus not only does the bank lower costs for itself and its customer, it provides an alternative to disintermediation.

All this makes a fairly compelling argument for DFO technology. However, sell side firms that want to distribute front office functionality to the buy side are faced with a number of hurdles. First, the current infrastructure organisation into asset class product silos, consisting of different non-interoperable platforms, support different trading activities. Then there is the fact that a multiplicity of information and market data sources need to be aggregated, commingled, and distributed in a meaningful way. The sheer volume of this information generally results in fatter client connections and containers, which severely affects distribution times, efficiencies, and costs. Lastly, clients typically have a confusing variety of displays to connect to, which requires extremely flexible front ends.

That's not the end of the difficulties, either. Obviously customers want to be able to have the best information and analytics to make the trading decision, and they also want to be able to immediately act on that decision. By adding order management and trade negotiation applications as a DFO offering, sell side firms can improve customer relationships. To fully complement customer offerings, sell side firms must also manage connectivity to fragmented liquidity pools, to offer customers best trade prices. Volume, efficiency, and speed are the outgrowth of leveraging the power of application distribution.

Re-engineering Sell-Side Front OfficesTo extend their value propositions outside their four walls, sell-side firms are beginning to take a strategic look across the entire enterprise. Single point solutions are expanding to encompass multiple-dealer execution venues. But, to achieve the goal of an improved strategic customer value proposition often means redefining the infrastructure. Platforms able to meet these challenges will have to be content agnostic and asset class neutral. Any platform under consideration must further support real-time market data, and analytic and transactional applications distribution-and it must have flexible connectivity to various client displays and liquidity pools. It is assumed that this platform will be scalable, reliable and customisable.

A platform that is optimised for application distribution allows firms to blend rapidly customisable applications and their own business logic with rapid time-to-market strategies. Obviously, rapid application development has to be followed by rapid deployment to end-users. Newly developed applications have no return on investment while they sit waiting to be loaded onto a desktop. Also, this platform should have an open architecture for easy integration.

Now for the good news. For sell-side institutions making this leap, the benefits are enormous-and immediate. Once the sell side trading floor functionality is extended to the buy side desktop, product offerings can be expanded, distinguishing core competencies can deliver more customer value, and customers are quickly benefiting from the lower costs of electronic trading efficiencies.

XO___XO XXX How to Calculate Exchange Rate

If you're planning to go abroad and exchange your money for another currency, it's a good idea to figure out how much cash you'll have after the exchange. Also, knowing exactly how much your money is worth can prevent you from being charged unreasonable fees because you'll be able to calculate your losses and choose which method to use if you plan in advance. Being aware of how much your foreign currency is worth is a smart travel move that can potentially save you quite a bit of trouble.

1

Estimate the amount of money you wish to exchange. Think about how much money you're budgeting for the trip. Or, if you know how much money you'll need in the other country, work backwards and start with the foreign currency.
2
Look up the exchange rate of the currency to which you wish to convert. You can find this information on a Google search, or on several banking or financial websites.
- Note that you want to set the currency you have to 1; the value listed next to the currency you're exchanging to is the exchange rate.
3
Calculate how much money you'll have after the exchange. Multiply the money you've budgeted by the exchange rate. The answer is how much money you'll have after the exchange. If "a" is the money you have in one currency and "b" is the exchange rate, then "c" is how much money you'll have after the exchange. So a * b = c, and a = c/b.
- For instance, say you want to convert US dollars to Euros. At the time of this revision, 1 US dollar is worth 0.7618 Euro. Your exchange rate is 0.7618. If you're planning on taking $1500 US dollars with you, you would multiply 1500 by 0.7618. The answer, 1142.7, is how much money you'll have in Euros after the exchange.
- Here's an example of the "work backwards" method. Say that you know you'll need 20,000 Hungarian forints for your trip. You discover that 1 US dollar is equivalent to 226.43 forints. To figure out how many US dollars you would need to save at the current exchange rate, divide 20,000 by 226.43. The answer, 88.33, is how many US dollars you need to exchange.

Part2
Using Other Conversion Tools

1

Check for an up-to-date conversion rate online. There are many websites^[1]^[2] that constantly update their site with the current conversion rates for currencies around the world. These are good places to look for the exchange rate, then use the equation in Step 3 above to calculate currency totals.
2

Contact the government for accurate exchange rates. You can contact the Department of Treasury^[3] or other governmental agencies^[4] to get up-to-date information about exchange rates for converting currency.
3
Google the conversion you want to know. Simply type into a Google search bar what conversion you want to make and Google will tell you the answer using their currency converter.^[5]
- For example, if you want to know what the exchange rate for $1,000 US to Euros is, type 1000 dollars to euros in any Google search bar and it will tell you the answer.
- However, because Google's finance converter does not constantly track and update current currency exchange rates, this information is more of an estimate and should not be relied on as accurate up-to-the-minute data.

1
Ask your bank. Many banks, especially larger ones like Bank of America or Wells Fargo, keep foreign currency on hand in the branch.^[6] You can go to the bank and pick them up directly or order them online. And, even if you are not a customer, these banks will usually allow you to exchange currency for a fee.
- If your bank's branch does not keep he currency on hand, they can often order it for you. This usually takes about 2-5 business days.^[7]
- Note: Many smaller banks and credit unions are unable to exchange foreign currency.^[8]
2
Use a currency exchange service. Most major airports have currency exchange services that use companies like Travelex^[9] to help travelers exchange their home country's money when they arrive in a new destination.
- These services often charge much higher fees than exchanging currency at a bank because they are in prime locations (like airports) where people need local currency quickly.
3

Use an ATM in a foreign country. Sometimes the easiest way to exchange money is to simply use your card at an ATM while you are traveling. Your bank will probably charge you a foreign transaction fee that is a percentage of the entire amount withdrawn (usually 1-3%)^[10] in addition to other fees for using another bank's ATM.

How are international exchange rates set?

Forex and Commodities

Generally speaking, the more dependent a country is on a primary domestic industry, the stronger the correlation between the national currency and the industry's commodity prices.

In general, there is no uniform rule for determining what commodities a given currency will be correlated with and how strong that correlation will be. However, some currencies provide good examples of commodity-forex relationships.

Consider that the Canadian dollar is positively correlated to the price of oil. Therefore, as the price of oil goes up, the Canadian dollar tends to appreciate against other major currencies. This is due to the fact that Canada is a net oil exporter; when oil prices are high, Canada tends to reap greater revenues from its oil exports, giving the Canadian dollar a boost on the foreign exchange market.

Another good example comes from the Australian dollar, which is positively correlated with gold. Because Australia is one of the world's biggest gold producers, its dollar tends to move in unison with price changes in gold bullion. Thus, when gold prices rise significantly, the Australian dollar will also be expected to appreciate against other major currencies.

Foreign exchange market

The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines the foreign exchange rate. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In terms of trading volume, it is by far the largest market in the world, followed by the Credit market.^[1]

The main participants in this market are the larger international banks. Financial centers around the world function as anchors of trading between a wide range of multiple types of buyers and sellers around the clock, with the exception of weekends. Since currencies are always traded in pairs, the foreign exchange market does not set a currency's absolute value but rather determines its relative value by setting the market price of one currency if paid for with another. Ex: 1 USD is worth X CAD, or CHF, or JPY, etc.

The foreign exchange market works through financial institutions, and operates on several levels. Behind the scenes, banks turn to a smaller number of financial firms known as "dealers", who are involved in large quantities of foreign exchange trading. Most foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the "interbank market" (although a few insurance companies and other kinds of financial firms are involved). Trades between foreign exchange dealers can be very large, involving hundreds of millions of dollars. Because of the sovereignty issue when involving two currencies, Forex has little (if any) supervisory entity regulating its actions.

The foreign exchange market assists international trade and investments by enabling currency conversion. For example, it permits a business in the United States to import goods from European Union member states, especially Eurozone members, and pay Euros, even though its income is in United States dollars. It also supports direct speculation and evaluation relative to the value of currencies and the carry trade speculation, based on the differential interest rate between two currencies.^[2]

In a typical foreign exchange transaction, a party purchases some quantity of one currency by paying with some quantity of another currency.

The modern foreign exchange market began forming during the 1970s. This followed three decades of government restrictions on foreign exchange transactions under the Bretton Woods system of monetary management, which set out the rules for commercial and financial relations among the world's major industrial states after World War II. Countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed per the Bretton Woods system.

The foreign exchange market is unique because of the following characteristics:

its huge trading volume, representing the largest asset class in the world leading to high liquidity;
its geographical dispersion;
its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMT on Sunday (Sydney) until 22:00 GMT Friday (New York);
the variety of factors that affect exchange rates;
the low margins of relative profit compared with other markets of fixed income; and
the use of leverage to enhance profit and loss margins and with respect to account size.

As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks.

According to the Bank for International Settlements, the preliminary global results from the 2016 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets Activity show that trading in foreign exchange markets averaged $5.09 trillion per day in April 2016. This is down from $5.4 trillion in April 2013 but up from $4.0 trillion in April 2010. Measured by value, foreign exchange swaps were traded more than any other instrument in April 2016, at $2.4 trillion per day, followed by spot trading at $1.7 trillion.^[3]

The $5.09 trillion break-down is as follows:

$1.654 trillion in spot transactions
$700 billion in outright forwards
$2.383 trillion in foreign exchange swaps
$96 billion currency swaps
$254 billion in options and other products

Ancient

Currency trading and exchange first occurred in ancient times.^[4] Money-changers (people helping others to change money and also taking a commission or charging a fee) were living in the Holy Land in the times of the Talmudic writings (Biblical times). These people (sometimes called "kollybistẻs") used city stalls, and at feast times the Temple's Court of the Gentiles instead.^[5] Money-changers were also the silversmiths and/or goldsmiths^[6] of more recent ancient times.

During the 4th century AD, the Byzantine government kept a monopoly on the exchange of currency.^[7]

Papyri PCZ I 59021 (c.259/8 BC), shows the occurrences of exchange of coinage in Ancient Egypt.^[8]

Currency and exchange were important elements of trade in the ancient world, enabling people to buy and sell items like food, pottery and raw materials.^[9] If a Greek coin held more gold than an Egyptian coin due to its size or content, then a merchant could barter fewer Greek gold coins for more Egyptian ones, or for more material goods. This is why, at some point in their history, most world currencies in circulation today had a value fixed to a specific quantity of a recognized standard like silver and gold.

Medieval and later

During the 15th century, the Medici family were required to open banks at foreign locations in order to exchange currencies to act on behalf of textile merchants.^[10]^[11] To facilitate trade, the bank created the nostro (from Italian, this translates to "ours") account book which contained two columned entries showing amounts of foreign and local currencies; information pertaining to the keeping of an account with a foreign bank.^[12]^[13]^[14]^[15] During the 17th (or 18th) century, Amsterdam maintained an active Forex market.^[16] In 1704, foreign exchange took place between agents acting in the interests of the Kingdom of England and the County of Holland.^[17]

Early modern

Alex. Brown & Sons traded foreign currencies around 1850 and was a leading currency trader in the USA.^[18] In 1880, J.M. do Espírito Santo de Silva (Banco Espírito Santo) applied for and was given permission to engage in a foreign exchange trading business.^[19]^[20]

The year 1880 is considered by at least one source to be the beginning of modern foreign exchange: the gold standard began in that year.^[21]

Prior to the First World War, there was a much more limited control of international trade. Motivated by the onset of war, countries abandoned the gold standard monetary system.^[22]

Modern to post-modern

From 1899 to 1913, holdings of countries' foreign exchange increased at an annual rate of 10.8%, while holdings of gold increased at an annual rate of 6.3% between 1903 and 1913.^[23]

At the end of 1913, nearly half of the world's foreign exchange was conducted using the pound sterling.^[24] The number of foreign banks operating within the boundaries of London increased from 3 in 1860, to 71 in 1913. In 1902, there were just two London foreign exchange brokers.^[25] At the start of the 20th century, trades in currencies was most active in Paris, New York City and Berlin; Britain remained largely uninvolved until 1914. Between 1919 and 1922, the number of foreign exchange brokers in London increased to 17; and in 1924, there were 40 firms operating for the purposes of exchange.^[26]

During the 1920s, the Kleinwort family were known as the leaders of the foreign exchange market, while Japheth, Montagu & Co. and Seligman still warrant recognition as significant FX traders.^[27] The trade in London began to resemble its modern manifestation. By 1928, Forex trade was integral to the financial functioning of the city. Continental exchange controls, plus other factors in Europe and Latin America, hampered any attempt at wholesale prosperity from trade^{[clarification needed]} for those of 1930s London.^[28]

After World War II

In 1944, the Bretton Woods Accord was signed, allowing currencies to fluctuate within a range of ±1% from the currency's par exchange rate.^[29] In Japan, the Foreign Exchange Bank Law was introduced in 1954. As a result, the Bank of Tokyo became the center of foreign exchange by September 1954. Between 1954 and 1959, Japanese law was changed to allow foreign exchange dealings in many more Western currencies.^[30]

U.S. President, Richard Nixon is credited with ending the Bretton Woods Accord and fixed rates of exchange, eventually resulting in a free-floating currency system. After the Accord ended in 1971,^[31] the Smithsonian Agreement allowed rates to fluctuate by up to ±2%. In 1961–62, the volume of foreign operations by the U.S. Federal Reserve was relatively low.^[32]^[33] Those involved in controlling exchange rates found the boundaries of the Agreement were not realistic and so ceased this^{[clarification needed]} in March 1973, when sometime afterward^{[clarification needed]} none of the major currencies were maintained with a capacity for conversion to gold^{[clarification needed]}, organizations relied instead on reserves of currency.^[34]^[35] From 1970 to 1973, the volume of trading in the market increased three-fold.^[36]^[37]^[38] At some time (according to Gandolfo during February–March 1973) some of the markets were "split", and a two-tier currency market^{[clarification needed]} was subsequently introduced, with dual currency rates. This was abolished in March 1974.^[39]^[40]^[41]

Reuters introduced computer monitors during June 1973, replacing the telephones and telex used previously for trading quotes.^[42]

Markets close

Due to the ultimate ineffectiveness of the Bretton Woods Accord and the European Joint Float, the forex markets were forced to close^{[clarification needed]} sometime during 1972 and March 1973.^[43] The very largest purchase of US dollars in the history of 1976^{[clarification needed]} was when the West German government achieved an almost 3 billion dollar acquisition (a figure given as 2.75 billion in total by The Statesman: Volume 18 1974), this event indicated the impossibility of the balancing of exchange stabilities by the measures of control used at the time and the monetary system and the foreign exchange markets in "West" Germany and other countries within Europe closed for two weeks (during February and, or, March 1973. Giersch, Paqué, & Schmieding state closed after purchase of "7.5 million Dmarks" Brawley states "... Exchange markets had to be closed. When they re-opened ... March 1 " that is a large purchase occurred after the close).^[44]^[45]^[46]^[47]

After 1973

In developed nations, the state control of the foreign exchange trading ended in 1973 when complete floating and relatively free market conditions of modern times began.^[48] Other sources claim that the first time a currency pair was traded by U.S. retail customers was during 1982, with additional currency pairs becoming available by the next year.^[49]^[50]

On 1 January 1981, as part of changes beginning during 1978, the People's Bank of China allowed certain domestic "enterprises" to participate in foreign exchange trading.^[51]^[52] Sometime during 1981, the South Korean government ended Forex controls and allowed free trade to occur for the first time. During 1988, the country's government accepted the IMF quota for international trade.^[53]

Intervention by European banks (especially the Bundesbank) influenced the Forex market on 27 February 1985.^[54] The greatest proportion of all trades worldwide during 1987 were within the United Kingdom (slightly over one quarter). The United States had the second amount of places involved in trading.^[55]

During 1991, Iran changed international agreements with some countries from oil-barter to foreign exchange.^[56]

Market size and liquidity

Main foreign exchange market turnover, 1988–2007, measured in billions of USD.

The foreign exchange market is the most liquid financial market in the world. Traders include governments and central banks, commercial banks, other institutional investors and financial institutions, currency speculators, other commercial corporations, and individuals. According to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International Settlements, average daily turnover was $3.98 trillion in April 2010 (compared to $1.7 trillion in 1998).^[57] Of this $3.98 trillion, $1.5 trillion was spot transactions and $2.5 trillion was traded in outright forwards, swaps, and other derivatives.

In April 2010, trading in the United Kingdom accounted for 36.7% of the total, making it by far the most important centre for foreign exchange trading in the world. Trading in the United States accounted for 17.9% and Japan accounted for 6.2%.^[58]

For the first time ever, Singapore surpassed Japan in average daily foreign-exchange trading volume in April 2013 with $383 billion per day. So the order became: United Kingdom (41%), United States (19%), Singapore (6%), Japan (6%) and Hong Kong (4%).^[59]

Turnover of exchange-traded foreign exchange futures and options has grown rapidly in recent years, reaching $166 billion in April 2010 (double the turnover recorded in April 2007). As of April 2016, exchange-traded currency derivatives represent 2% of OTC foreign exchange turnover. Foreign exchange futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are traded more than to most other futures contracts.

Most developed countries permit the trading of derivative products (such as futures and options on futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Some governments of emerging markets do not allow foreign exchange derivative products on their exchanges because they have capital controls. The use of derivatives is growing in many emerging economies.^[60]Countries such as South Korea, South Africa, and India have established currency futures exchanges, despite having some capital controls.

Foreign exchange trading increased by 20% between April 2007 and April 2010, and has more than doubled since 2004.^[61] The increase in turnover is due to a number of factors: the growing importance of foreign exchange as an asset class, the increased trading activity of high-frequency traders, and the emergence of retail investors as an important market segment. The growth of electronic execution and the diverse selection of execution venues has lowered transaction costs, increased market liquidity, and attracted greater participation from many customer types. In particular, electronic trading via online portals has made it easier for retail traders to trade in the foreign exchange market. By 2010, retail trading was estimated to account for up to 10% of spot turnover, or $150 billion per day (see below: Retail foreign exchange traders).

Foreign exchange is traded in an over-the-counter market where brokers/dealers negotiate directly with one another, so there is no central exchange or clearing house. The biggest geographic trading center is the United Kingdom, primarily London. According to TheCityUK, it is estimated that London increased its share of global turnover in traditional transactions from 34.6% in April 2007 to 36.7% in April 2010. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. For instance, when the International Monetary Fund calculates the value of its special drawing rights every day, they use the London market prices at noon that day.

Market participants

**Top 10 currency traders** ^[62]
% of overall volume, May 2016
Rank	Name	Market share
1	Citi	12.9 %
2	JP Morgan	8.8%
3	UBS	8.8%
4	Deutsche Bank	7.9%
5	Bank of America Merrill Lynch	6.4%
6	Barclays	5.7%
7	Goldman Sachs	4.7%
8	HSBC	4.6%
9	XTX Markets	3.9%
10	Morgan Stanley	3.2%

Unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the interbank foreign exchange market, which is made up of the largest commercial banks and securities dealers. Within the interbank market, spreads, which are the difference between the bid and ask prices, are razor sharp and not known to players outside the inner circle. The difference between the bid and ask prices widens (for example from 0 to 1 pip to 1–2 pips for currencies such as the EUR) as you go down the levels of access. This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier interbank market accounts for 51% of all transactions.^[63] From there, smaller banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size”.^[64] Central banks also participate in the foreign exchange market to align currencies to their economic needs.

Commercial companies

An important part of the foreign exchange market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short-term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational corporations (MNCs) can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Central banks

National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would. There is also no convincing evidence that they actually make a profit from trading.

Foreign exchange fixing

Foreign exchange fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that central banks use the fixing time and exchange rate to evaluate the behavior of their currency. Fixing exchange rates reflect the real value of equilibrium in the market. Banks, dealers and traders use fixing rates as a market trend indicator.

The mere expectation or rumor of a central bank foreign exchange intervention might be enough to stabilize a currency. However, aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.^[65] Several scenarios of this nature were seen in the 1992–93 European Exchange Rate Mechanism collapse, and in more recent times in Asia.

Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.

Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. While the number of this type of specialist firms is quite small, many have a large value of assets under management and can therefore generate large trades.

Retail foreign exchange traders

Individual retail speculative traders constitute a growing segment of this market. Currently, they participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated in the USA by the Commodity Futures Trading Commission and National Futures Association, have previously been subjected to periodic foreign exchange fraud.^[66]^[67] To deal with the issue, in 2010 the NFA required its members that deal in the Forex markets to register as such (I.e., Forex CTA instead of a CTA). Those NFA members that would traditionally be subject to minimum net capital requirements, FCMs and IBs, are subject to greater minimum net capital requirements if they deal in Forex. A number of the foreign exchange brokers operate from the UK under Financial Services Authority regulations where foreign exchange trading using margin is part of the wider over-the-counter derivatives trading industry that includes contracts for difference and financial spread betting.

There are two main types of retail FX brokers offering the opportunity for speculative currency trading: brokers and dealers or market makers. Brokers serve as an agent of the customer in the broader FX market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer. They charge a commission or "mark-up" in addition to the price obtained in the market. Dealers or market makers, by contrast, typically act as principals in the transaction versus the retail customer, and quote a price they are willing to deal at.

Non-bank foreign exchange companies

Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as "foreign exchange brokers" but are distinct in that they do not offer speculative trading but rather currency exchange with payments (i.e., there is usually a physical delivery of currency to a bank account).

It is estimated that in the UK, 14% of currency transfers/payments are made via Foreign Exchange Companies.^[68] These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank.^[69] These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services. The volume of transactions done through Foreign Exchange Companies in India amounts to about USD 2 billion ^[70] per day This does not compete favorably with any well developed foreign exchange market of international repute, but with the entry of online Foreign Exchange Companies the market is steadily growing . Around 25% of currency transfers/payments in India are made via non-bank Foreign Exchange Companies.^[71] Most of these companies use the USP of better exchange rates than the banks. They are regulated by FEDAI and any transaction in foreign Exchange is governed by the Foreign Exchange Management Act, 1999 (FEMA).

Money transfer/remittance companies and bureaux de change

Money transfer companies/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest foreign markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally, followed by UAE Exchange.^{[citation needed]} Bureaux de change or currency transfer companies provide low value foreign exchange services for travelers. These are typically located at airports and stations or at tourist locations and allow physical notes to be exchanged from one currency to another. They access the foreign exchange markets via banks or non bank foreign exchange companies.

Trading characteristics

Most traded currencies by value
Currency distribution of global foreign exchange market turnover^[72]
Rank	Currency	ISO 4217 code (symbol)	% daily share (April 2016)
1	United States dollar	USD (US$)	87.6%
2	Euro	EUR (€)	31.4%
3	Japanese yen	JPY (¥)	21.6%
4	Pound sterling	GBP (£)	12.8%
5	Australian dollar	AUD (A$)	6.9%
6	Canadian dollar	CAD (C$)	5.1%
7	Swiss franc	CHF (Fr)	4.8%
8	Renminbi	CNY (元)	4.0%
9	Swedish krona	SEK (kr)	2.2%
10	New Zealand dollar	NZD (NZ$)	2.1%
11	Mexican peso	MXN ($)	1.9%
12	Singapore dollar	SGD (S$)	1.8%
13	Hong Kong dollar	HKD (HK$)	1.7%
14	Norwegian krone	NOK (kr)	1.7%
15	South Korean won	KRW (₩)	1.7%
16	Turkish lira	TRY (₺)	1.4%
17	Russian ruble	RUB (₽)	1.1%
18	Indian rupee	INR (₹)	1.1%
19	Brazilian real	BRL (R$)	1.0%
20	South African rand	ZAR (R)	1.0%
Other			7.1%
Total^[73]			200.0%

There is no unified or centrally cleared market for the majority of trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice, the rates are quite close due to arbitrage. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. Major trading exchanges include Electronic Broking Services (EBS) and Thomson Reuters Dealing, while major banks also offer trading systems. A joint venture of the Chicago Mercantile Exchange and Reuters, called Fxmarketspace opened in 2007 and aspired but failed to the role of a central market clearing mechanism.^{[citation needed]}

The main trading centers are London and New York City, though Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session begins, followed by the North American session and then back to the Asian session.

Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows. These are caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large cross-border M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow.

Currencies are traded against one another in pairs. Each currency pair thus constitutes an individual trading product and is traditionally noted XXXYYY or XXX/YYY, where XXX and YYY are the ISO 4217 international three-letter code of the currencies involved. The first currency (XXX) is the base currency that is quoted relative to the second currency (YYY), called the counter currency (or quote currency). For instance, the quotation EURUSD (EUR/USD) 1.5465 is the price of the Euro expressed in US dollars, meaning 1 euro = 1.5465 dollars. The market convention is to quote most exchange rates against the USD with the US dollar as the base currency (e.g. USDJPY, USDCAD, USDCHF). The exceptions are the British pound (GBP), Australian dollar (AUD), the New Zealand dollar (NZD) and the euro (EUR) where the USD is the counter currency (e.g. GBPUSD, AUDUSD, NZDUSD, EURUSD).

The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency correlation between XXXYYY and XXXZZZ.

On the spot market, according to the 2016 Triennial Survey, the most heavily traded bilateral currency pairs were:

EURUSD: 23.0%
USDJPY: 17.7%
GBPUSD (also called cable): 9.2%

The U.S. currency was involved in 87.6% of transactions, followed by the euro (31.3%), the yen (21.6%), and sterling (12.8%) (see table). Volume percentages for all individual currencies should add up to 200%, as each transaction involves two currencies.

Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded currency pair in the interbank spot market.

The following theories explain the fluctuations in exchange rates in a floating exchange rate regime (In a fixed exchange rate regime, rates are decided by its government):

International parity conditions: Relative purchasing power parity, interest rate parity, Domestic Fisher effect, International Fisher effect. Though to some extent the above theories provide logical explanation for the fluctuations in exchange rates, yet these theories falter as they are based on challengeable assumptions [e.g., free flow of goods, services and capital] which seldom hold true in the real world.
Balance of payments model: This model, however, focuses largely on tradable goods and services, ignoring the increasing role of global capital flows. It failed to provide any explanation for the continuous appreciation of the US dollar during the 1980s and most of the 1990s, despite the soaring US current account deficit.
Asset market model: views currencies as an important asset class for constructing investment portfolios. Asset prices are influenced mostly by people's willingness to hold the existing quantities of assets, which in turn depends on their expectations on the future worth of these assets. The asset market model of exchange rate determination states that “the exchange rate between two currencies represents the price that just balances the relative supplies of, and demand for, assets denominated in those currencies.”

None of the models developed so far succeed to explain exchange rates and volatility in the longer time frames. For shorter time frames (less than a few days), algorithms can be devised to predict prices. It is understood from the above models that many macroeconomic factors affect the exchange rates and in the end currency prices are a result of dual forces of demand and supply. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange.^[74]

Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.

Economic factors

These include: (a) economic policy, disseminated by government agencies and central banks, (b) economic conditions, generally revealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates).
Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.
Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.
Inflation levels and trends: Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.
Economic growth and health: Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.
Productivity of an economy: Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector.^[75]

Political conditions

Internal, regional, and international political conditions and events can have a profound effect on currency markets.

All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in Pakistan and Thailand can negatively affect the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive/negative interest in a neighboring country and, in the process, affect its currency.

Market psychology

Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:

Flights to quality: Unsettling international events can lead to a "flight-to-quality", a type of capital flight whereby investors move their assets to a perceived "safe haven". There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The US dollar, Swiss franc and gold have been traditional safe havens during times of political or economic uncertainty.^[76]
Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.^[77]
"Buy the rumor, sell the fact": This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".^[78] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.
Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example, money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.
Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.^[79]

Financial instruments

Spot

A spot transaction is a two-day delivery transaction (except in the case of trades between the US dollar, Canadian dollar, Turkish lira, euro and Russian ruble, which settle the next business day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct exchange” between two currencies, has the shortest time frame, involves cash rather than a contract, and interest is not included in the agreed-upon transaction. Spot trading is one of the most common types of Forex Trading. Often, a forex broker will charge a small fee to the client to roll-over the expiring transaction into a new identical transaction for a continuation of the trade. This roll-over fee is known as the "Swap" fee.

Forward

One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be one day, a few days, months or years. Usually the date is decided by both parties. Then the forward contract is negotiated and agreed upon by both parties.

Non-deliverable forward (NDF)

Forex banks, ECNs, and prime brokers offer NDF contracts, which are derivatives that have no real deliver-ability. NDFs are popular for currencies with restrictions such as the Argentinian peso. In fact, a Forex hedger can only hedge such risks with NDFs, as currencies such as the Argentinian Peso cannot be traded on open markets like major currencies.^[80]

Swap

The most common type of forward transaction is the foreign exchange swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange. A deposit is often required in order to hold the position open until the transaction is completed.

Futures

Futures are standardized forward contracts and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.

Currency futures contracts are contracts specifying a standard volume of a particular currency to be exchanged on a specific settlement date. Thus the currency futures contracts are similar to forward contracts in terms of their obligation, but differ from forward contracts in the way they are traded. They are commonly used by MNCs to hedge their currency positions. In addition they are traded by speculators who hope to capitalize on their expectations of exchange rate movements.

Option

A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.

Speculation

Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Economists, such as Milton Friedman, have argued that speculators ultimately are a stabilizing influence on the market, and that stabilizing speculation performs the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.^[81] Other economists, such as Joseph Stiglitz, consider this argument to be based more on politics and a free market philosophy than on economics.

Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors.

Currency speculation is considered a highly suspect activity in many countries. While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Swedish National Bank (the central bank of Sweden) to raise interest rates for a few days to 500% per annum, and later to devalue the krona.

Gregory Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.

In this view, countries may develop unsustainable economic bubbles or otherwise mishandle their national economies, and foreign exchange speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic mishandling, followed by an eventual, larger, collapse.

Risk aversion

The MSCI World Index of Equities fell while the US dollar index rose

Risk aversion is a kind of trading behavior exhibited by the foreign exchange market when a potentially adverse event happens which may affect market conditions. This behavior is caused when risk averse traders liquidate their positions in risky assets and shift the funds to less risky assets due to uncertainty.^[86]

In the context of the foreign exchange market, traders liquidate their positions in various currencies to take up positions in safe-haven currencies, such as the US dollar.^[87] Sometimes, the choice of a safe haven currency is more of a choice based on prevailing sentiments rather than one of economic statistics. An example would be the Financial Crisis of 2008. The value of equities across the world fell while the US dollar strengthened (see Fig.1). This happened despite the strong focus of the crisis in the US.

Carry trade

Currency carry trade refers to the act of borrowing one currency that has a low interest rate in order to purchase another with a higher interest rate. A large difference in rates can be highly profitable for the trader, especially if high leverage is used. However, with all levered investments this is a double edged sword, and large exchange rate price fluctuations can suddenly swing trades into huge losses.

Financial transaction

A financial transaction is an agreement, or communication, carried out between a buyer and a seller to exchange an asset for payment.

It involves a change in the status of the finances of two or more businesses or individuals. The buyer and seller are separate entities or objects, often involving the exchange of items of value, such as information, goods, services, and money. It is still a transaction if the goods are exchanged at one time, and the money at another. This is known as a two-part transaction: part one is giving the money, part two is receiving the goods.

In ancient times non-financial transactions were commonly conducted through systems of credit, in which goods and services were exchanged for a promise of future recompense. Credit has certain disadvantages, including the requirement that traders or their intermediaries trust one another, or trust that authorities exist who can be relied on to enforce agreements. Debts must eventually be settled either with goods or by payment of money, a substance of agreed value such as gold and silver.

Systems of credit are evident throughout recorded history and from archeology. By contrast little evidence has been found of widespread use of pure barter, where traders meet face to face and transactions are completed in a single swap.

As cities, states, and empires were established, coins and other compact forms of specie were minted or printed as fiat money with set values, permitting the accumulation of assets that would not deteriorate over time as goods might and that had the relatively secure backing of a government which could adjust value by producing more or less of the currency. As fixed currencies were gradually replaced by floating currencies during the 20th century, and as the recent development of computer networks made electronic money possible, financial transactions have rapidly increased in speed and complexity.

Examples

Purchases

This is the most common type of financial transaction. An item or goods are exchanged for money. This transaction results in a decrease in the finances of the purchaser and an increase in the benefits of the sellers.

Loan

This is a slightly more complicated transaction than others in which the lender gives a single large amount of money to the borrower now in return for many smaller repayments of the borrower to the lender over time, usually on a fixed schedule. The smaller delayed repayments usually add up to more than the first large amount. The difference in payments is called interest. Here, money is given for not any specific reason.

Mortgage

This is a combined loan and purchase in which a lender gives a large amount of money to a borrower for the specific purpose of purchasing a very expensive item (most often a house). As part of the transaction, the borrower usually agrees to give the item (or some other high value item) to the lender if the loan is not paid back on time. This guarantee of repayment is known as collateral.

Bank account

A bank is a business that is based almost entirely on financial transactions. In addition to acting as a lender for loans and mortgages, banks act as a borrower in a special type of loan called an account. The lender is known as a customer and gives unspecified amounts of money to the bank for unspecified amounts of time. The bank agrees to repay any amount in the account at any time and will pay small amounts of interest on the amount of money that the customer leaves in the account for a certain period of time. In addition, the bank guarantees that the money will not be stolen while it is in the account and will reimburse the customer if it is. In return, the bank gets to use the money for other financial transactions as long as they hold it.

Credit card

This is a special combination of a purchase and a loan. The seller gives the buyer the good or item as normal, but the buyer pays the seller using a credit card. In this way, the buyer is paying with a loan from the credit card company, usually a bank. The bank or other financial institution issues credit cards to buyers that allow any number of loans up to a certain cumulative amount. Repayment terms for credit card loans, or debts vary, but the interest is often extremely high. An example of common repayment terms would be a minimum payment of the greater of $10 or 3% every month and a 15–20% interest charge for any unpaid loan amount. In addition to interest, buyers are sometimes charged a yearly fee to use the credit card.

In order to collect the money for their item, the seller must apply to the credit card company with a signed receipt. Sellers usually apply for many payments at regular intervals. The seller is also charged a fee of normally 1–3% of the purchase price by the credit card company for the privilege of accepting that brand of credit card for purchases.

Thus, in a credit card purchase, the transfer of the item is immediate, but all payments are delayed. The credit card holder receives a monthly account of all transactions. The billing delay may be long enough to defer a purchase payment to the bill after the next one.

Debit card

This is a special type of purchase. The item or good is transferred as normal, but the purchaser uses a debit card instead of money to pay. A debit card contains an electronic record of the purchaser's account with a bank. Using this card, the seller is able to send an electronic signal to the buyer's bank for the amount of the purchase, and that amount of money is simultaneously debited from the customer's account and credited to the account of the seller. This is possible even if the buyer or seller use different financial institutions. Currently, fees to both the buyer and seller for the use of debit cards are fairly low because the banks want to encourage the use of debit cards. The seller must have a card reader set up in order for such purchases to be made. Debit cards allow a buyer to have access to all the funds in his account without having to carry the money around. It is more difficult to steal such funds than cash, but it is still done.

E-Money – Mobile Money – Mobile Banking – What’s the Difference?

When we speak at conferences or with people interested in the use of mobile phones for financial service delivery, we are often asked what is the difference between e-money, mobile money, mobile banking, and a range of other terms that are often used wily-nily in reference to this emerging business opportunity. It is a good question. People are confused. And rightfully so. There are no universally accepted definitions. While this lack of uniformity may not be important much of the time, it does become critical at the regulatory level as well as when potential players are trying to have a meaningful conversation with each other.

In an attempt to create some clarity around terminology,

Do you think having some consensus around terminology would be an important step for the industry? How would you change the definitions that I have complied to make them more universally acceptable? Your comments and thoughts are welcomed.

E-Money

Simply put, electronic money or e-money is the electronic alternative to cash. It is monetary value that is stored electronically on receipt of funds, and which is used for making payment transactions. E-Money can be held on cards, devices, or on a server. Examples include pre-paid cards, electronic purses, such as M-PESA in Kenya, or web-based services, such as PayPal. As such, e-money can serve an umbrella term for a number of more specific electronic value products and services.

The European Union (EU) has been involved in defining terms related to e-money since 2000, which is much longer than many other countries or regions. The following definitions are included in the most recent proposed directive from the EU.

Electronic Money Institution. A legal person that has been granted authorization to issue electronic money.

Hybrid Issuers. Service providers who issue e-money as an accessory activity to their core business, ie mobile phone companies, public transport companies, etc.

Mobile Financial Services

Mobile Financial Services or MFS is another broad term that refers to a range of financial services that can be offered across the mobile phone. Three of the leading forms of MFS are mobile money transfer, mobile payments, and mobile banking.

Mobile Money Transfer (MMT). Services whereby customers use their mobile device to send and receive monetary value - or more simply put, to transfer money electronically from one person to another using a mobile phone. Both domestic transfers as well as international, or cross-border, remittances are money transfer services.

Mobile Payments. While MMT addresses person-to-person money transfers, mobile payments refer to person-to-business payments that are made with a mobile phone.  Mobile proximity payments involve a mobile phone being used to make payments at a point-of-sale (POS) terminal. In these cases, the mobile phone may communicate with the POS through contactless technologies, such as Near Field Communication (NCR).  Mobile remote payments involve using the phone as a mechanism to purchase mobile-related services, such as ring tones, or as an alternate payment channel for goods sold online.  Mobile bill payments tend to require interconnection with the bank account of the receiving business, and hence are considered part of mobile banking.

Mobile Banking. The connection between a mobile phone and a personnel or business bank account. Mobile banking allows customers to use their mobile phone as another channel for their banking services, such as deposits, withdrawals, account transfer, bill payment, and balance inquiry. Most mobile banking applications are additive in that they provide a new delivery channel to existing bank customers.  Transformative models integrate unbanked populations into the formal financial sector.

Other Terms

Other terms that are often used in association with, or interchangeably with, e-money, mobile financial services include:

Electronic Wallet (eWallet). Refers to the cash value that is stored on a card, phone, or other electronic device. Pre-paid cards are one form of electronic wallet. Electronic wallets can represent a fixed value. In this case, once the value has been spent, the card can no longer be used. Or wallets can be reloaded – to be used again and again. The term wallet is used because the card or phone is considered a substitute for the cash normally carried in a person’s wallet.

Electronic Vouchers. Refer to definition for electronic wallet.

Mobile Money. Refer to definition for mobile financial services.

Mobile Wallet (mWallet). An electronic wallet that is stored on a phone. GSMA provides the following more specific definition: “mWallet is a data repository that houses consumer data sufficient to facilitate a financial transaction from a mobile handset, and the applicable intelligence to translate an instruction from a consumer through a mobile handset/bearer/application into a message that a financial institution can use to debit or credit bank accounts or payment instruments.”

XO___XO XXX 10001 + 10 What are the Benefits of Importing and Exporting Products?

With the expansion of the Internet, many businesses have now started to compete on a global scale. Whenever a business starts growing and expanding, entrepreneurs begin striving to become more competitive – either by importing or exporting goods. As these are the basics that make a business successful, here are some of the key benefits of importing and exporting that are worth considering.

Why is importing and exporting goods important?

As soon as a business starts operating internationally, there are many additional factors which can have a huge impact on its success. Exporting and importing goods is not just the core of any large, successful business; it also helps national economies grow and expand.

Each country is endowed with some specific resources. At the same time, a country may lack other resources in order to develop and improve its overall economy. For example, while some countries are rich in minerals and precious metals or fossil fuels, others are experiencing a shortage of these resources. Some countries have highly developed educational systems or infrastructures, while others do not.

Once countries start exporting whatever they are rich in, as well as importing goods they lack, their economies begin developing. Importing and exporting goods is not only important for businesses; it is important for individual consumers, too. Consumers can benefit from certain products or components that are not produced locally, but are available to purchase online from a business abroad.

Benefits of importing

When people talk about importing in terms of trade, they refer to purchasing products or services from another country. These products or services are then offered to customers by the importing business or individual, broadening their choice of purchase. However, this is not the only benefit of importing; there are many more to consider. Here are some of them.

1. INTRODUCING NEW PRODUCTS TO THE MARKET

Many businesses in India and China tend to produce goods for the European and American market. This is mostly due to the size of these markets and the purchasing power of the population there. But once a new product is introduced to these two markets, it may take a year or more before the product is introduced to other, smaller markets.

If a product produced in China seems attractive/useful to entrepreneurs in Australia, they can import it and introduce it to their potential consumers. Thanks to the internet expansion, entrepreneurs can conduct market research prior to importing a certain product. This will help them determine if there is an actual need on the market for such an imported product, so they can develop an effective marketing strategy in advance.

2. REDUCING COSTS

Another major benefit of importing is the reduce in manufacturing costs. Many businesses today find importing products, parts of products and resources more affordable than producing them locally.

There are numerous cases when entrepreneurs find products of good quality which are inexpensive even when the overall import expenses are included. So instead of investing in modern, expensive machinery, entrepreneurs choose to import goods and reduce their costs. In most cases, they end up ordering large quantities in order to get a better price and minimize the costs.

benefits of importing and exporting - reduced costs

3. BECOMING A LEADER IN THE INDUSTRY

One of the key benefits of importing products is the opportunity to become a market leader in the industry of interest. Since manufacturing new and improved products is a never-ending process, many businesses worldwide use the chance to import new and unique products before their competitors do. Being the first to import a fresh product can easily lead you to becoming a leader in a certain industry.

4. PROVIDING HIGH QUALITY PRODUCTS

Another benefit of importing is related to the ability to market products of high quality. Lots of successful entrepreneurs travel abroad, visit factories and other highly professional sellers in order to find high quality products and import them into their own country. Moreover, manufacturers may provide informative courses and training, as well as introduce standards and practices to ensure the company abroad is well prepared to sell their products.

If you choose to base your business on importing products, chances are you are going to get high quality products. This is due to the fact that manufacturing businesses are very aware that their reputation largely depends on the quality of the items they produce. This is a reason more to consider importing the essence of your new business.

Benefits of exporting

Just as there is a variety of benefits of importing products and services, there are numerous reasons for exporting, too. Here are the two key benefits of exporting products to other countries:

1. INCREASING YOUR SALES POTENTIAL

While importing products can help businesses reduce costs, exporting products can ensure increasing sales and sales potential in general. Businesses that focus on exporting expand their vision and markets regionally, internationally or even globally. Instead of earning money by selling their offerings on the local market, these businesses are focused on discovering new opportunities to present their work abroad.

Exporting products is especially good for medium and large businesses – the ones that have already expanded within the local market. Once they have saturated the market in their country, exporting products abroad can be a great opportunity for these businesses to increase the sales potential. Additionally, exporting can be one way of scanning opportunities for overseas franchising or even production.

benefits of importing and exporting - increased sales potential

2. INCREASING PROFITS

Exporting products can largely contribute to increasing your profits. This is mainly due to the foreign orders, as they are usually larger than those placed by the local buyers. While local customers buy a few products or a pallet, businesses abroad oftentimes order a container of products which inevitably leads to increased profits. Moreover, if your products are considered unique or innovative abroad, your profits can increase rapidly in no time.

Achieve your business goals by importing and exporting products

Importing and exporting products can be highly beneficial for businesses today. While importing can help small and medium businesses develop and expand by reaching larger markets abroad, exporting can increase the profits of medium and large businesses.

If you’re striving to make your business the leader in its industry, or you are thinking of lowering production costs, importing is certainly worth considering. Otherwise, if your local market is too small for your business and you’re searching for new opportunities to expand – exporting may be your key to success.

Maintaining Rates

Some countries may decide to use a pegged exchange rate that is set and maintained artificially by the government. This rate will not fluctuate intraday, and may be reset on particular dates known as revaluation dates. Governments of emerging market countries often do this to create stability in the value of their currencies. In order to keep the pegged foreign exchange rate stable, the government of the country must hold large reserves of the currency to which its currency is pegged in order to control changes in supply and demand.

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e- Sell + e- Buy = e- Import Value + e- Export Value = e- Liquidity Transaction

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Minggu, 05 Agustus 2018

Business Informatics