The foreign exchange market is the world’s largest financial market by virtually any measure. It is the only truly global financial market: currencies are traded in financial centers around the world, connected by communications systems that allow nearly instantaneous transmission of price information and trade instructions. The market has grown rapidly over the last decade since cross-border capital flows have been liberalized and the regulatory constraints on institutional investments relaxed. The increased liquidity of securities markets, particularly in the industrial countries, which has resulted from privatization and from larger and more efficient markets for government debt securities, has also increased the range of foreign assets available to investors and made foreign investment easier. This expansion of cross-border capital flows has been actively promoted by governments seeking broader investor bases for their own debt and for securities issued by domestic firms. Improvements in trading and settlement practices and in technology have increased the liquidity of secondary markets for foreign exchange instruments and allowed participating financial institutions to handle larger volumes of transactions safely.
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