Wednesday, February 11, 2009
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Unlike a stock market, where all participants have access to the same prices, the forex market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest investment banking firms. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, are razor sharp and usually unavailable, and not known to players outside the inner circle. As you descend the levels of access, the difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the forex market are determined by the size of the “line” (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller investment banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail forex-metal market makers. According to Galati and Melvin, “Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s.” (2004) In addition, he notes, “Hedge funds have grown markedly over the 2001–2004 period in terms of both number and overall size” Central banks also participate in the forex market to align currencies to their economic needs.
[edit] Banks
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account.
Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.
[edit] Commercial companies
An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.
[edit] Central banks
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Milton Friedman argued that the best stabilization strategy would be for central banks to buy when the exchange rate is too low, and to sell when the rate is too high — that is, to trade for a profit based on their more precise information. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.
The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.[4] Several scenarios of this nature were seen in the 1992–93 ERM collapse, and in more recent times in Southeast Asia.
Other Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies
Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companiesThese are also known as Foreign Exchange Brokers but are distinct from Forex Brokers as they do not offer speculative trading but currency exchange with payments. i.e. there is usually a physical delivery of currency to a bank account.
It is estimated that in the UK, 14% of currency transfers/payments are made via Foreign Exchange Companies[7]. These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.
Money Transfer/Remittance Companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally.
Trading Forex
A currency trade is the simultaneous buying of one currency and selling of another one. The currency combination used in the trade is called a (for example, the euro/US dollar, or the GB pound/Japanese yen.). The most commonly traded currencies are the so-called “majors” – EURUSD, USDJPY, USDCHF and GBPUSD.
The most important Forex market is the spot market as it has the largest volume. The market is called the market because trades are settled immediately, or “on the spot”. In practice this means two banking days.
Forward Outrights
For forward outrights, settlement on the value date selected in the trade means that even though the trade itself is carried out immediately, there is a small interest rate calculation left. The interest rate differential doesn't usually affect trade considerations unless you plan on holding a position with a large differential for a long period of time. The interest rate differential varies according to the cross you are trading. On the USDCHF, for example, the interest rate differential is quite small, whereas the differential on NOKJPY is large. This is because if you trade e.g. NOKJPY, you get almost 7% (annual) interest in Norway and close to 0% in Japan. So, if you borrow money in Japan, to finance the trade and buying NOK, you have a positive interest rate differential. This differential has to be calculated and added to your account. You can have both a positive and a negative interest rate differential, so it may work for or against you when you make a trade.Monday, February 9, 2009
State insurance advocate: Ban credit scoring for car coverage
LANSING -- Auto insurance companies would have to receive state approval before raising rates and be prohibited from using credit scores, occupations or educational attainment levels to set policy costs, under recommendations outlined this morning by the state's insurance advocate.
"Michigan consumers pay the highest auto insurance rates in the country when they can least afford it. The insurance industry has raised rates 69 percent since 1991 while enjoying virtually no regulation for 30 years," said Butch Hollowell, who was appointed last year by Gov. Jennifer Granholm to review the state's insurance climate and see what changes could be made to provide fairer, more affordable insurance.
The long-awaited report is certain to set off vigorous debate in the Legislature.
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The governor, in her State of the State speech Tuesday, urged auto insurers to voluntarily freeze rates for 12 months to allow time for the Legislature to consider comprehensive insurance reforms. Of particular concern to Granholm is the skyrocketing cost of insurance in Detroit and other urban areas which has contributed to the decision by many drivers to simply go without insurance.
Another recommendation in the 328-page report: Allowing consumers with collision coverage to recover repair costs from at-fault drivers who collide with them, and require insurers to get insurance commissioner approval before raising rates.
"This report will be a blueprint for achieving my longstanding goal of affordable, reliable and fair rates for Michigan citizens," Granholm said in a statement.
For their part, insurance companies say part of the reason for higher insurance costs here is because Michigan provides the nation's highest level of benefits. Michigan's no-fault law requires insurances to provide unlimited, lifetime medical benefits to a crash victim. They point to a report from the National Association of Insurance Commissioners that found Michigan's average auto insurance premium ranks 12th highest among the states -- and that the 11 states with higher premiums provide fewer benefits than those provided in Michigan
"Michigan consumers pay the highest auto insurance rates in the country when they can least afford it. The insurance industry has raised rates 69 percent since 1991 while enjoying virtually no regulation for 30 years," said Butch Hollowell, who was appointed last year by Gov. Jennifer Granholm to review the state's insurance climate and see what changes could be made to provide fairer, more affordable insurance.
The long-awaited report is certain to set off vigorous debate in the Legislature.
Advertisement
The governor, in her State of the State speech Tuesday, urged auto insurers to voluntarily freeze rates for 12 months to allow time for the Legislature to consider comprehensive insurance reforms. Of particular concern to Granholm is the skyrocketing cost of insurance in Detroit and other urban areas which has contributed to the decision by many drivers to simply go without insurance.
Another recommendation in the 328-page report: Allowing consumers with collision coverage to recover repair costs from at-fault drivers who collide with them, and require insurers to get insurance commissioner approval before raising rates.
"This report will be a blueprint for achieving my longstanding goal of affordable, reliable and fair rates for Michigan citizens," Granholm said in a statement.
For their part, insurance companies say part of the reason for higher insurance costs here is because Michigan provides the nation's highest level of benefits. Michigan's no-fault law requires insurances to provide unlimited, lifetime medical benefits to a crash victim. They point to a report from the National Association of Insurance Commissioners that found Michigan's average auto insurance premium ranks 12th highest among the states -- and that the 11 states with higher premiums provide fewer benefits than those provided in Michigan
Internet can help you drive a good bargain in auto insurance
Smart consumers are accustomed to comparing prices online for all kinds of goods and services, and insurance is no different. The spokes-gecko on TV is right: Regularly shopping for auto and homeowner's insurance is a great way to save money. And using the Web can help.
''Many people stick with the same insurance carrier year after year without ever shopping for a better deal,'' Consumer Reports said in the car-insurance guide on its Web site. ''Blind loyalty to one insurer can cost you dearly.''
A survey by the magazine found that some drivers were paying twice as much for a policy than they would have with another insurer.
Shopping online for home and auto insurance can be a bit complicated, which means many people might benefit from the hand-holding of a human broker. But using the Web can be a good idea.
In part, that's because many sites offer not only online quotes but also personalized help via phone or online chat. And, if nothing else, you will be able to see other premium quotes, which lets you know whether your current insurer is competitive on price.
Auto insurance is more important than home to compare prices on, because premiums vary widely. Premiums on homeowner's insurance are relatively similar, and there's no way yet to get a variety of instant quotes on home insurance because it's so specialized, said Sam Belden, vice president of Insurance.com.
It's easy for insurers to offer coverage for a Toyota Corolla whether you live in Pennsylvania or Illinois because the cars are generally the same. But ranch-style houses in those areas can be quite different, as can the contents of the houses.
You often can obtain a discount for having both auto and home insurance with the same carrier. For that reason, a good strategy is to actively shop for auto insurance and, essentially, tack on home insurance from the same company, Belden said.
Here are some issues about shopping for auto insurance.
Why should I compare premiums? Rates for auto insurance vary considerably, not only because of the usual price variations among companies, but because insurers calculate your risk differently.
For example, some insurers heavily base premiums on your credit score, which is why you're often asked for your Social Security number. Others care about how long you've held a job or lived in a house. Still others care more about a clean driving record, Belden said. So, it's a matter of finding an optimal fit for you.
Why should I shop online? The benefit of comparing online is time and hassle. On comparison sites, you can input the information once and obtain quotes from multiple carriers.
It also helps in comparing apples-to-apples quotes, so you don't mistakenly compare auto liability coverage of $100,000 per person in one policy to $250,000 in another.
Insurance.com returns instant auto insurance quotes from a dozen insurers, Belden said. The alternative would be to call up 12 different insurers and go through an interview each time to get a quote. InsWeb.com and NetQuote.com are other popular sites.
But some of the larger, and potentially cheaper, insurers don't participate in comparison sites. So you might separately check out such companies as State Farm.
What types of comparison sites are available? Two types of auto-insurance comparison sites are available. An instant-quote site gives you a quote after filling out forms, which ask questions about you and your vehicle. You can buy insurance right away.
Others are lead-generation sites, which simply sell your completed information to insurance agents. Those agents then contact you by phone or e-mail.
You can often decipher which type of site you're looking at by going to its ''About Us'' page or something similar, which will describe how the site gives quotes, Belden said.
What should I look out for in an insurer? Price isn't the only criterion in choosing a company.
Auto and home insurance are different than life insurance, which requires very little service after you buy.
With the others, you occasionally will be making claims and seeking prompt payment.
The better comparison sites will give you the hours of operation of the insurer, customer-satisfaction ratings and financial-stability ratings from an independent ratings agency.
You also can check with your state insurance department, which might track consumer complaints for insurers operating in the state.
''Many people stick with the same insurance carrier year after year without ever shopping for a better deal,'' Consumer Reports said in the car-insurance guide on its Web site. ''Blind loyalty to one insurer can cost you dearly.''
A survey by the magazine found that some drivers were paying twice as much for a policy than they would have with another insurer.
Shopping online for home and auto insurance can be a bit complicated, which means many people might benefit from the hand-holding of a human broker. But using the Web can be a good idea.
In part, that's because many sites offer not only online quotes but also personalized help via phone or online chat. And, if nothing else, you will be able to see other premium quotes, which lets you know whether your current insurer is competitive on price.
Auto insurance is more important than home to compare prices on, because premiums vary widely. Premiums on homeowner's insurance are relatively similar, and there's no way yet to get a variety of instant quotes on home insurance because it's so specialized, said Sam Belden, vice president of Insurance.com.
It's easy for insurers to offer coverage for a Toyota Corolla whether you live in Pennsylvania or Illinois because the cars are generally the same. But ranch-style houses in those areas can be quite different, as can the contents of the houses.
You often can obtain a discount for having both auto and home insurance with the same carrier. For that reason, a good strategy is to actively shop for auto insurance and, essentially, tack on home insurance from the same company, Belden said.
Here are some issues about shopping for auto insurance.
Why should I compare premiums? Rates for auto insurance vary considerably, not only because of the usual price variations among companies, but because insurers calculate your risk differently.
For example, some insurers heavily base premiums on your credit score, which is why you're often asked for your Social Security number. Others care about how long you've held a job or lived in a house. Still others care more about a clean driving record, Belden said. So, it's a matter of finding an optimal fit for you.
Why should I shop online? The benefit of comparing online is time and hassle. On comparison sites, you can input the information once and obtain quotes from multiple carriers.
It also helps in comparing apples-to-apples quotes, so you don't mistakenly compare auto liability coverage of $100,000 per person in one policy to $250,000 in another.
Insurance.com returns instant auto insurance quotes from a dozen insurers, Belden said. The alternative would be to call up 12 different insurers and go through an interview each time to get a quote. InsWeb.com and NetQuote.com are other popular sites.
But some of the larger, and potentially cheaper, insurers don't participate in comparison sites. So you might separately check out such companies as State Farm.
What types of comparison sites are available? Two types of auto-insurance comparison sites are available. An instant-quote site gives you a quote after filling out forms, which ask questions about you and your vehicle. You can buy insurance right away.
Others are lead-generation sites, which simply sell your completed information to insurance agents. Those agents then contact you by phone or e-mail.
You can often decipher which type of site you're looking at by going to its ''About Us'' page or something similar, which will describe how the site gives quotes, Belden said.
What should I look out for in an insurer? Price isn't the only criterion in choosing a company.
Auto and home insurance are different than life insurance, which requires very little service after you buy.
With the others, you occasionally will be making claims and seeking prompt payment.
The better comparison sites will give you the hours of operation of the insurer, customer-satisfaction ratings and financial-stability ratings from an independent ratings agency.
You also can check with your state insurance department, which might track consumer complaints for insurers operating in the state.
things u should know about auto insurance
It is important for every driver to understand the fundamentals of auto insurance before being involved in an accident and before hiring a personal injury attorney.
Liability Coverage
The basic auto insurance coverage is called Liability Coverage and it pays for any property damage or injury you cause to another person.
You can purchase the minimum amount of coverage required by the law of your state (in Arizona the minimum is $15,000). However, you can also purchase Liability Coverage in greater amounts to protect you in the event you cause a greater amount of damage.
In addition to whatever amount of coverage you choose, the insurance company will also pay for an attorney to represent you if you get sued by the injured person.
Uninsured Motorist Coverage
The next type of auto insurance coverage you can buy is Uninsured Motorist Coverage which pays for damage or injury caused to you or your passengers by an uninsured motorist. This coverage can be purchased in different amounts as well.
Underinsurance Motorist Coverage
You can also purchase Underinsurance Motorist Coverage which pays for damage or injury caused to you or your passengers by a driver who doesn't have enough coverage of his own to fully compensate for the damage or injury he causes. This coverage can be purchased in different amounts as well.
Collision Coverage
There is also Collision Coverage you can buy to pay for your property damage, regardless of whether the damage was caused by someone else's fault or not.
Medical Payments Coverage
Finally, you can purchase Medical Payment Coverage which pay for medical care caused to you or your passengers as a result of a car accident.
In the event you are involved in an auto accident with injuries, having proper insurance in an adequate amount will enable your personal injury attorney to obtain a recovery sufficient to fully compensate you and your passengers.
Resource
Martin J. Solomon is a past president of the Arizona Trial Lawyers Association, exclusively practices in Personal Injury Law, and represent clients throughout the State of Arizona.
Liability Coverage
The basic auto insurance coverage is called Liability Coverage and it pays for any property damage or injury you cause to another person.
You can purchase the minimum amount of coverage required by the law of your state (in Arizona the minimum is $15,000). However, you can also purchase Liability Coverage in greater amounts to protect you in the event you cause a greater amount of damage.
In addition to whatever amount of coverage you choose, the insurance company will also pay for an attorney to represent you if you get sued by the injured person.
Uninsured Motorist Coverage
The next type of auto insurance coverage you can buy is Uninsured Motorist Coverage which pays for damage or injury caused to you or your passengers by an uninsured motorist. This coverage can be purchased in different amounts as well.
Underinsurance Motorist Coverage
You can also purchase Underinsurance Motorist Coverage which pays for damage or injury caused to you or your passengers by a driver who doesn't have enough coverage of his own to fully compensate for the damage or injury he causes. This coverage can be purchased in different amounts as well.
Collision Coverage
There is also Collision Coverage you can buy to pay for your property damage, regardless of whether the damage was caused by someone else's fault or not.
Medical Payments Coverage
Finally, you can purchase Medical Payment Coverage which pay for medical care caused to you or your passengers as a result of a car accident.
In the event you are involved in an auto accident with injuries, having proper insurance in an adequate amount will enable your personal injury attorney to obtain a recovery sufficient to fully compensate you and your passengers.
Resource
Martin J. Solomon is a past president of the Arizona Trial Lawyers Association, exclusively practices in Personal Injury Law, and represent clients throughout the State of Arizona.
Don't overlook insurance agents
CONSUMERS SHOULD be reminded that buying auto insurance policies from direct sellers is only one way to purchase insurance and not always the least expensive way ("Shopping auto insurers can really pay off," Feb. 1). There is no question that consumers can save money when shopping around. But the most efficient way to find the best bargain is to speak with an independent insurance agent. Agents understand the local market and will take the time to navigate the numerous available options, finding coverage packages best suited to protect the consumer's most important assets, and then comparison shop to get the right price and coverage.
The two companies mentioned in your article offer a one-size-fits-all approach and will tell you only about their products even if their offerings aren't the best fit for your needs.
Better deals are indeed found when consumers shop around. But a good agent can do the legwork for you and achieve even greater savings
The two companies mentioned in your article offer a one-size-fits-all approach and will tell you only about their products even if their offerings aren't the best fit for your needs.
Better deals are indeed found when consumers shop around. But a good agent can do the legwork for you and achieve even greater savings
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