The 2004 survey shows a surge in traditional foreign exchange trading. This seems to have been driven by momentum trading and carry trades in a global search for yield on the part of institutional investors and leveraged players as well as by hedging activity.

The most recent BIS triennial survey shows that turnover in foreign exchange markets increased by more than 70% over the three years to April 2007. Two specific findings stand out. First, the growth in transactions between banks and other financial institutions was particularly strong,...

Interest rate differentials have been a driving force behind exchange rate movements in recent years. This has focused market attention on the role of currency carry trade positions, and on the possibility that a sudden unwinding might adversely affect financial stability. However, carry trades...