Interbank impact on the market

[Timothy970]

Pls dear traders,I want you guys to clearify me on this issue, it is said that banks or big financial instituitions that engage in interbank market do have enough money inorder to meet up with demands of customers and in the contrary if it thinks it is going out of specified reserve that was stipulated for them to have or money to meet up with demands of customers they either BORROW from the interbank market . *****my first question is say a BANK of Australia that is in INTERBANk NETWORK and its customers are in pressure of wanting dollar say to run or buy goods from U.S, so I want to ask can this BANK BUY from the INTERBANK market instead of BORROWING/LOANING from the interbank market that’s question number 1

******if No 1 is TRUE, that they can BUY then another question is will it be done by exchanging of Australia dollar (remember I am talking about the Australia Bank in interbank network that needs Dollar) to GET U.S DOLLARS from the interbank Market.

******if No 2 is so, another question is it by the CURRENT AUD/USD exchange rate or fixed country or BARGAIN exchange rate

******ok if the above question is done by either way, then another question is will these trade that occur now in the purchase of this dollar by the Australia bank cause movement in value of USD/AUD pair

****** Another question is let’s ASSUME that they AUSTRALIA bank in question BORROW USD from the inerbank market. Then in WHAT currency will it be returned is it in USD or in AUD

******Finally, does this transcation especially the BORROWED one affect price movement even the BOUGHT ones how does it affect price movement

NB- please my dear experts, experienced analysts and trades pls clearify me on this issue as I want to know the underground mechanism of this interbank since knowing that it is large volume trades that move market. And they are the onea’s that mostly handle such trades pls clearify me on this pls I need plenty replies and clear explanations. Good day roomies you can call to explain more to me my number is 2348057397127 I will appreciate

[lexys]

They don’t borrow “[I][U]from the[/U][/I] interbank market”: they borrow “[I][U]via an[/U][/I] interbank market”. You’re confused about what “interbank market” means - that’s all. None of this has anything to do with retail trading at all.

[Timothy970]

I have understand the analogy of “via an interbank” that’s you mean that they borrow within themselves based creditworthiness . That one apart ok if. Say the Australia Bank want to pay the money it borrowed from the bank that borrowed it will it pay back in dollar form or AUD equivalence of the money it borrowed.

[_bob]

Bro, this is a bit of a simplistic way to look at thinks [U][I][B]but in all honesty[/B][/I][/U], who cares why they do what they do. As long as they keep doing it. It is because of that we can speculate on price movement and profit from that movement with OTC derivatives.

And they trade cash, there is no borrowing per say.

[Timothy970]

And they trade cash, there is no borrowing per say.[/QUOTE]

No I know of that they borrow but I want to know its effect on market plus other question I ask above pls I need someone to asnwer me those question one after the other

[_bob]

To understand the answer first you must understand the question.

[_bob]

but I want to know its effect on market

Annoyed now. Effect is price goes up, price goes down. We’ll never know why and we don’t have to.

[anon46773462]

Timothy, there are a number of different types of banking operations mixed together in your questions. On one hand, banks provide a currency market-making function in a wide range of currency pairs including many cross pairs as well. Their aim is to provide a service to their customers who also include other banks as well as corporates and funds. Market-making is not about taking positions except for maybe a leaning in one direction, it makes its money from its bid-offer spread. A bank will be taking trades constantly all day long and managing its overall exposure via manipulating its spread. It does not itself move the price, it only reacts to buying and selling pressures through its spread. If it cannot manage its exposure purely through its own spread then it will also buy or sell through the market.

An entirely different market comes via the customer desk who pass on to the dealers their customer orders. These are generally related to commercial transactions where the customer is buying in a foreign currency or domiciling income received from its own sales, etc.

Yet another area within the bank is concerned with foreign currency loans to its customers. These may range from, say, a week to maybe 5 years or more. In this case, the bank will normally borrow the currency instead of buying it to match the customer loan. It will price its loan to the customer at an interest rate higher than its own borrowing costs. The issue here for the bank is whether it matches the loan period exactly or rolls it over, say, every week, month, 6ths, yearly and so on. But again, this kind of transaction does not, in itself affect the overall price in the market.

A more relevant concern with regard to impact on price levels is the activities of the huge investment and pension funds who control vast sums of money which are spread thoughout the globe and are periodically shifted around according to their investment policies. If these funds take a significant change in direction regarding their desired exposure in various currencies then this will undoubtedly, in a collective manner, impact on price levels. But these dinosaurs do not move fast and are often severely controlled by their fund parameters concerning the type and quantity of risks they can take.

The foreign exchange market is huge. No one deal will move prices apart from maybe a imperceptible wiggle here or there, and no single institution is going to move anything much because of its own constraints. It is the herd moving together in the same direction that moves things. In general, commercial and investment banks are not in the business of taking huge gambles and trying to move markets with huge positions. Their business is to provide financial services for others, for which they receive a market spread, an interest differential or a fee income. Of course they will also take positions in markets but they are subject to risk and exposure management just like any other business.

This is a very simplified description but hopefully helps to show where the banks and institutions that make up the interbank market are actually positioned in the overall picture.

[Timothy970]

Timothy, there are a number of different types of banking operations mixed together in your questions. On one hand, banks provide a currency market-making function in a wide range of currency pairs including many cross pairs as well. Their aim is to provide a service to their customers who also include other banks as well as corporates and funds. Market-making is not about taking positions except for maybe a leaning in one direction, it makes its money from its bid-offer spread. A bank will be taking trades constantly all day long and managing its overall exposure via manipulating its spread. It does not itself move the price, it only reacts to buying and selling pressures through its spread. If it cannot manage its exposure purely through its own spread then it will also buy or sell through the market.

An entirely different market comes via the customer desk who pass on to the dealers their customer orders. These are generally related to commercial transactions where the customer is buying in a foreign currency or domiciling income received from its own sales, etc.

Yet another area within the bank is concerned with foreign currency loans to its customers. These may range from, say, a week to maybe 5 years or more. In this case, the bank will normally borrow the currency instead of buying it to match the customer loan. It will price its loan to the customer at an interest rate higher than its own borrowing costs. The issue here for the bank is whether it matches the loan period exactly or rolls it over, say, every week, month, 6ths, yearly and so on. But again, this kind of transaction does not, in itself affect the overall price in the market.

A more relevant concern with regard to impact on price levels is the activities of the huge investment and pension funds who control vast sums of money which are spread thoughout the globe and are periodically shifted around according to their investment policies. If these funds take a significant change in direction regarding their desired exposure in various currencies then this will undoubtedly, in a collective manner, impact on price levels. But these dinosaurs do not move fast and are often severely controlled by their fund parameters concerning the type and quantity of risks they can take.

The foreign exchange market is huge. No one deal will move prices apart from maybe a imperceptible wiggle here or there, and no single institution is going to move anything much because of its own constraints. It is the herd moving together in the same direction that moves things. In general, commercial and investment banks are not in the business of taking huge gambles and trying to move markets with huge positions. Their business is to provide financial services for others, for which they receive a market spread, an interest differential or a fee income. Of course they will also take positions in markets but they are subject to risk and exposure management just like any other business.

This is a very simplified description but hopefully helps to show where the banks and institutions that make up the interbank market are actually positioned in the overall picture’.

ooh Manxx God bless you for creating out time to answer my question in detailed form it help me a lot beacause it made the video of interbank that i watched easier for me to comprehend. Thanks manxx a very very much much lol