Factors Favoring Growth of Forex Market
Posted by admin on July 1, 2009 under Forex Trading | 
Be the First to Comment
In the year 1949, modern Euro currency was established for the Growth of Forex Market. The new communist government of China seized the earnings of dollars would be blocked by United States of America. To address this risk, by keeping them with their dollar earnings began to hide the owner of a Russian bank in Paris. After the outbreak of the Korean War, the United States of America recognized and blocked the dollar balances. Their holdings of similar action against the fear of Russian banks in Paris and London, banks in Western Europe instead of direct deposit of them in New York to keep his balance by disguising started. Thus, western banks in the United States dollar and the balance at the communist depositors claimed that on the west coast had the same kind of claim. This is first factor favoring Growth of Forex Market.
The second factor favoring Growth of Forex Market is the decision taken by the United Kingdom Government to ban on new foreign loans, denominated in sterling to finance the trade between the countries outside the area of sterling. During this period, the exchange control restrictions are relaxed in Western Europe, which provides the freedom of commercial banks to do business and allowed to receive deposits in foreign currency. This situation is used by London banks to bid their limited clients in non-sterling area with alternative financing in United States dollars.
The real momentum for the Growth of Forex Market and Eurodollars came from certain developments in the United States of America itself. Regulation of the Federal Reserve act provided mandatory ceilings on interest rates that could be paid on bank deposits. Under the regulations, no interest was payable on bank deposits of less than thirty days duration, while interest rate for longer terms were governed by strict ceilings. Thus the interest rates payable on dollar deposits in the United States of America was restricted, while no such restriction was there for deposits from non-US residents. By offering higher rates of interest than those prevailing in the United States of America, banks operating outside the United States of America were able to attract substantial dollar deposits from non-US residents. The higher rate of interest also resulted in transfer of some of dollar balances kept by foreign investors in New York to outside the United States of America. Initially, these deposits were placed with banks in London, as they had a ready use of these funds in foreign exchange business and lending to non-sterling areas.
Thus, with all these factors of Growth of Forex Market London gained prominence as a financial center for Eurocurrency.
