Although the figures presented in the latest Bank for International Settlements Triennial Central Bank Survey 2007 will not have come as too much as a shock to foreign exchange market participants, they remain impressive. According to BIS, they show an "unprecedented rise in activity in traditional foreign exchange markets compared to 2004".
Overall daily activity in the FX market rose by 71% at current exchange rates to $3.2 trillion in April 2007 (see table). More impressive, perhaps, was the fact that daily swap volumes rose by 82% to just over $1.7 trillion, and over-the-counter option volumes expanded by almost the same percentage (81%), to $212 billion.
BIS attributes the growth to several factors, including new participants, such as hedge funds and retail, the increase of prime brokerage and diversification into FX by institutional investors. It also points to the increase in automated trading and activity in emerging market currencies.
Albert Maasland, global head of business development e-commerce at Standard Chartered, believes there are three key factors behind the increased popularity of emerging market currencies. "The first is the increase in cross-border trade flows, particularly with the emergence of significant new trade corridors, such as between Asia and Africa, Asia and the Middle East and Asia and Latin America," he says.