In March 2012, Bank for International Settlements economist Morten Bech produced a research paper that has caught the eye of investment bankers. According to his estimates, daily volumes on the global foreign exchange (FX) markets reached about $5000bn in September 2011. That makes FX the one asset class that had higher trading volumes in 2011 than before the fall of Lehman Brothers.
The geography of FX trading is also changing, as the growing share of emerging markets in the world economy and trade pushes up activity in these countries’ currencies. From a balance sheet viewpoint, short-dated FX forward transactions will attract relatively light capital requirements under Basel III, which also makes this a priority business for the banks.
