32. Misuse of the Currency Derivatives Causes Losses that Affect the Entire Society

The data from the foreign exchange market for 2016 showed that the exchange turnover on a daily basis has reached the amount of 5.067 billion dollars. This huge sum is a key source of daily financing activities of banks, that, due to transaction costs, even when they are marginal, ensure bank liquidity in a system that runs on the principle of inter-related investment funds daily resources.

However, the possibility of conversion of funds from one currency to another was not where banks were willing to stop at earning a commission, though they went a step further and offering the ability to purchase certain currency at a higher or lower rate, guaranteeing themselves profit from changes in foreign exchange differences. One of the key advantages that banks have are the currency derivatives where misuse of it can cause losses that can affect the entire society.

One of the key fields where manipulation with rate difference takes place is in everyday exchange between euros and dollars. To speculators on exchange rate difference this currency pair, which is the most popular on the market, brings earnings expressed in billions of monetary units on a daily basis brings. Besides that, key irregularities became very visible during the big oil crisis in 2013. The exchange rate of the US currency, as the one that is being used by the world’s leading economies and largest global consumer of energy is conditioned by the price of oil and it is inversely proportional to its growth and vice versa.

When the information come from the market in the United States are received information regarding the observed phenomenon that increases the purchasing power of citizens of this country, the price of oil in the U.S. market is growing, but the level of growth depends on what the effect of this trend has on the price on the London market. In those circumstances the dollar exchange rate was lower against the euro and the same relationship was applied in cases where, due to the increase in oil prices, mostly because of the blockade of exports or deliveries as a result of conflict in the Middle East there was a decrease in the dollar, as the world’s largest consumer, the United States, due to increased production costs so trying to fight for favorable export.

What has repeatedly happened in recent years is that, precisely at a time when the market was the most active, was that the daily volume of traffic was the largest that has occurred to the simultaneous growth and oil prices and the dollar exchange rate against the euro. Changes in exchange rate between the dollar and the euro and therefore are among the most unpredictable trends highest risk for long-term forecasts, but also a permanent source of income, as well those who assess opportunities, and banks on every transaction earning a certain amount.

Therefore, in addition to market derivatives, foreign exchange market registered the highest growth in total global trade. Markets, particularly futures, of certain listed goods have already reached the level at which the traffic is based on trade agreements that go beyond the actual stock exchange stocks, thanks to the fact that traders futures, for example, oil, aluminum or cereals are not looking for the physical delivery of goods over which have ownership.

The situation with gold from the stock exchange agreements has far more than what is physically possible to excavate from mining, showing how many market phenomena in fact are fictitious and to what extent are confined to the papers. However, all this is negligibly small, even negligible fictitious in relation to the money which circulates. If the starting argument takes the information that is primarily about forty international currency market total assets worth less than ten billion dollars, and that today it is almost 530 times more, or 5.300 billion, the only conclusion that we can reach is that the growth fictitious.

This article is part of the academic publication Dividing by Zero by Ana Nives Radovic, Global Knowledge 2018

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