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FX & hedge funds: Big boys rule

The Global Investor survey of hedge funds and foreign exchange finds that the biggest investment banks have strengthened their grip on the sector, writes James Norris.

This article appears courtesy of Global Investor.

To win business in the territory where hedge funds and foreign exchange meet requires a demanding combination of expertise, experience and resources. Spending on the latest technology, constantly under review and renewal, has taken trading, research and analysis to new heights of sophistication, and has ensured that only those banks with the deepest pockets can win at this game. No wonder then that the 2007 Global Investor survey finds the same names dominating the rankings as in the past few years.

FX flows have grown dramatically since 2001, when the Bank of International Settlements estimated in its triennial report that the average daily turnover in the FX and derivatives market was $1.2 trillion, then a record figure. BIS's subsequent report in 2004 revealed an impressive 36% increase, to $1.9 trillion.

In part, these FX flows have been boosted by an exponential growth in central bank FX reserves. According to BIS, central banks around the world, and particularly those in emerging markets, have increased their FX reserves from $2 trillion in 2000 to $4.6 trillion in June 2006, currently estimated to be 11% of global GDP, and representing growth of some 130%.

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