Exploring The Beliefs And Actions Of The Foreign Exchange ( Forex ) Market

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1. Report summary
1.1. Research purpose
This research was aim to discover the beliefs and actions of the trader in the foreign exchange (Forex) market, then adding to our knowledge about the microstructure of the Forex as well as trader’s view on exchange rate determination. Hence, it pointed out the divergence between economists’ and trader’s view.
1.2. Research method
Authors used survey methodology with sample on UK-based foreign exchange dealers to collect analysis data. Specifically, 110 questionnaires were return from 1940 surveys sent out to named dealer whose affiliations were extracted from the 1997 Hambro’s Dealer Directory.
1.3. Research result
a. Forex microstructure
According to the survey’s results, a large proportion of transactions in FX market were related to interbank business. Besides, trades were facilitated via both traditional channel – phone and the recent increasing of electronic channel in the past 2 decades.
b. Exchange rate determination
The research resulted in three difference points of view between academic researchers and traders on which components drive exchange rate movement over different horizons.
First of all, “fundamental is seen as a relevant concept by a large proportion of trader at horizons much shorter than mainstream academic theory can explain” (Cheung, Chinn and Marsh, 2004)
Secondly, short term currency movements seemed to be strongly affected by “speculative force”, in comparison with other determinant such as economic

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