03:17
Nadeem Akhtar
Risk aversion in the forex is a kind of trading behavior exhibited by the foreign exchange market when a potentially adverse event happens which may affect market conditions. This behavior is caused when risk averse traders liquidate their positions in risky assets and shift the funds to less risky assets due to uncertainty.
In the context of the forex market, traders liquidate their positions in various currencies to take up positions in safe-haven currencies, such as the US Dollar. Sometimes, the choice of a safe haven currency is more of a choice based on prevailing sentiments rather than one of economic statistics. An example would be the Financial Crisis of 2008. The value of equities across world fell while the US Dollar strengthened (see Fig.1). This happened despite the strong focus of the crisis in the USA.
External links
- A user's guide to the Triennial Central Bank Survey of foreign exchange market activity, Bank for International Settlements
- London Foreign Exchange Committee with links (on right) to committees in NY, Tokyo, Canada, Australia, HK, Singapore
- United States Federal Reserve daily update of exchange rates
- Bank of Canada historical (10-year) currency converter and data download
- Microstructure effects, bid-ask spreads and volatility in the spot foreign exchange market pre and post-EMU
- OECD Exchange rate statistics (monthly averages)
- "Lessons for the foreign exchange market from the global financial crisis" Two experts review how global FX markets coped after Lehman's bankruptcy in Sept 2008
