The foreign exchange and over-the-counter derivatives markets in the United Kingdom

Quarterly Bulletin 1998 Q4
Published on 01 December 1998

By Jamie Thom of the Bank’s Foreign Exchange Division and Jill Paterson and Louise Boustani of the Bank’s Markets and Trading Systems Division.

The foreign exchange market survey has been conducted triennially since 1986, and a parallel survey of the OTC derivatives markets was first conducted in 1995. This article sets out the results (in US$ billion), and compares them with the 1995 survey and results for other major centres.

The survey shows that:

  • Average daily spot and forward foreign exchange turnover for April 1998 was $637 billion, 37% higher than the $464 billion per day recorded three years earlier (an annualised growth rate of 11%).
  • Average daily turnover in the United Kingdom for OTC currency and interest rate derivatives was $171 billion, 131% higher than the $74 billion per day recorded three years earlier (an annualised growth rate of 32%).
  • The United Kingdom has consolidated its position as the world’s largest centre for foreign exchange and OTC derivatives business, accounting for 32% and 36% of the global foreign exchange and OTC derivatives markets respectively.
  • The forward foreign exchange market continued to grow more rapidly than the spot market, which now represents only 35% of total foreign exchange turnover.
  • US dollar/Deutsche Mark retained its position as the most widely traded currency pair (22% of all spot and forward foreign exchange transactions). The share of sterling trading rose, and sterling/US dollar regained its position as the second most actively traded currency pair (14% of turnover). Cross-trading of ERM currencies generally declined.
  • The proportion of interest rate OTC derivatives turnover accounted for by swaps increased from 32% to 56%; the proportion accounted for by forward rate agreements (FRAs) fell from 59% to 35%.
  • ERM currencies dominated the UK interest rate derivatives market, making up 56% of all trades. The Deutsche Mark almost doubled its share of the market, growing from 18% to 32%; all other major currencies lost market share.

PDFThe foreign exchange and over-the-counter derivatives markets in the United Kingdom


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