CFA Level I · CFA Level I Exam · Capital Flows and the FX Market
In the foreign exchange market, the largest share of daily trading volume is most likely accounted for by:
Most FX trading volume comes from transactions between sell-side dealers and other financial institutions, including buy-side firms like funds. Retail and central bank activity make up only a small fraction of the daily turnover in the market.
- Aretail transactions by individual travelers
- Btransactions between sell-side dealers and other financial institutionsCorrect
- Ccentral bank purchases of reserve currencies
Explanation
The FX market is dominated by the wholesale market, in which sell-side dealers trade with each other and with buy-side financial institutions such as asset managers and hedge funds. Retail traveler transactions and central bank reserve purchases are small relative to this flow.
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