In April 2007 the Ufficio Italiano dei Cambi conducted the customary triennial survey of the volume of foreign exchange and derivatives market transactions carried out by the major resident banks. This survey was conducted simultaneously by 54 central banks and monetary authorities, co-ordinated by the Bank for International Settlements, which is to release the preliminary global results, after adjusting for cross-border double-counting.
The Italian survey was conducted on a sample of 27 banks (26 Italian banks and 1 branch of a foreign bank in Italy). Their share of the foreign exchange and derivatives markets is estimated at 82 and 92 per cent respectively, whereas the sample of the 2004 survey accounted for 92 and 84 per cent. Data are computed on a daily basis and are adjusted for local dealers double-counting.
In April 2007 the total gross volume of foreign exchange transactions by the banking system, taking into account the coverage of the sample, amounted to $856 billion dollars, or $824 billion after adjusting for local double-counting (compared with $481 and $456 billion in 2004). On a daily average basis (19 trading days in April 2007) the net turnover may be estimated at around $43 billion ($22 billion in 2004). Counting both foreign exchange transactions and derivatives transactions, gross volume amounted to $1,538 billion, or $1,481 billion after adjusting for local double-counting (against $1,609 and $1,490 billion in 2004). Average daily turnover amounted to $78 billion ($71 billion in 2001).
The results of the 2007 survey show a change in the structure of the market highlighted in the 2004 survey. Foreign exchange instruments exceed in volume terms interest rate products and represent again the largest component of the market. The proportion of trading with bank counterparties, mainly international, increased especially in the interest rate segment, while it declined in favour of trading with non financial entities in the foreign exchange segment. The decline in inter-dealer activity contributed to the underlying trend.
The foreign exchange market, excluding derivatives, recorded an increase of its contribution to total activity (53 per cent; 33 and 41 per cent in 2004 and 2001 respectively), especially thanks to the forward segment which doubled its volume. In contrast with the increase in the foreign exchange market, a contraction was recorded in the market in interest rate derivatives. The volume of interest rate derivatives fell from around $947 billion to $616 billion.
Swaps remain the most used type of instrument. The volume of swaps was predominant in both the forward exchange market (83 per cent) and the interest rate market (82 per cent). While outright forwards rose by two thirds in absolute terms, forward rate agreements lost their importance. The volume of currency options halved while interest rate options registered a modest increase.
A high proportion of interbank transactions marked business in the markets; the activity was mainly carried out with foreign counterparties, almost all of them banks. The share of resident banks decreased in both the foreign exchange market (4 per cent) and the interest rate market (3 per cent), while that of other financial institutions declined in both the foreign exchange and the interest rate segment (respectively from 27 to 12 and from 11 to 8 per cent). Unlike international transactions, domestic activity was concentrated with customers.
Transactions denominated in euro prevailed in both the foreign exchange and the derivatives markets, accounting for around 86 per cent (78 per cent in 2004) of total turnover. With regard to the distribution by currency, the dollar continued to play the dominant role in both the spot and the forward markets. The currency pair euro/dollar accounted for around 82 per cent of total transactions against the euro (88 per cent excluding the spot market). In the interest rate market contracts referring to the euro amounted to 90 per cent and contracts referring to the dollar reached 7 per cent.