HOW FOREIGN EXCHANGE TURNOVER HAS GROWN

In 1998, the Federal Reserve’s most recently published survey of reporting dealers in the United States estimated that foreign exchange turnover in the U.S. market was $351 billion a day, after adjustments for double counting. That total is an increase of 43% above the estimated turnover in 1995 and more than 60 times the turnover in 1977, the first year for which roughly comparable survey data are available.

In some ways, this estimate understates the growth and the present size of the U.S. foreign exchange market. The $351 billion estimated

daily turnover covered only the three traditional instruments in the “over-the-counter” (OTC) market—spot, outright forwards, and foreign

exchange (FX) swaps; it did not include over-thecounter currency options and currency swaps traded in the OTC market, which totaled about $32 billion a day in notional value (or face value) in 1998. Nor did it include the two products traded, not “over-the-counter,” but in organized exchanges— currency futures and exchange-traded currency options, for which the notional value of the turnover was perhaps $10 billion per day.

The global foreign exchange market also has shown phenomenal growth. In 1998, in a survey under the auspices of the Bank for International

Settlements (BIS), global turnover of reporting dealers was estimated at about $1.49 trillion per day for the traditional products, plus an

additional $97 billion for over-the-counter currency options and currency swaps, and a further $12 billion for currency instruments

traded on the organized exchanges. In the traditional products, global foreign exchange turnover, measured in current exchange rates,

increased by more than 80 percent between 1992 and 1998.