Market structure and pricing

• November 11, 2008

  The Role of Dealers in Providing Interday Liquidity in the Canadian-Dollar Market

  Bank of Canada Review - Winter 2008-2009 Chris D'Souza

  Access to information about the future direction of the exchange rate can be extremely valuable in the foreign exchange market. Evidence presented in this article suggests that Canadian dealers are more likely to provide interday liquidity to foreign, rather than Canadian, financial customers, since foreign financial flows can be more informative about future movements in the exchange rate. The author reveals a statistical relationship between the supply of liquidity provided by non-financial firms and that provided by dealing institutions across time, and across markets, and suggests that the relationship between the positions of commercial clients and market-makers, and the role played by dealers in interday liquidity provision, has been understated in the market microstructure literature.

  Content Type(s): Publications, Bank of Canada Review articles Topic(s): Exchange rates, Financial institutions, Financial markets, Market structure and pricing

• The Role of Foreign Exchange Dealers in Providing Overnight Liquidity

  Staff Working Paper 2008-44 Chris D'Souza

  This paper illustrates that dealers in foreign exchange markets not only provide intraday liquidity, they are key participants in the provision of overnight liquidity. Dealing institutions receive compensation for holding undesired inventory balances in part from the information they receive in customer trades.

  Content Type(s): Staff research, Staff working papers Topic(s): Exchange rates, Financial markets, Market structure and pricing JEL Code(s): D, D8, D82, F, F3, F31, G, G2, G21