Financial intermediation and the role of price discrimination in a two-tier market /
Reitz, Stefan
Financial intermediation and the role of price discrimination in a two-tier market / Stefan Reitz, Markus A. Schmidt, Mark P. Taylor. - Frankfurt am Main : Deutsche Bundesbank, 2009 - 27 p. - Discussion paper. Series 1: economic studies ; no. 13/2009 . - Discussion paper (Deutsche Bundesbank). Series 1: economic studies no. 13/2009 .
Bibliografía: p. 18-20.
Though unambiguously outperforming all other financial markets in terms of liquidity, foreign exchange trading is still performed in opaque and decentralized markets. In particular, the two-tier market structure consisting of a customer segment and an interdealer segment to which only market makers have access gives rise to the possibility of price discrimination. We provide a theoretical foreign exchange pricing model that accounts for market power considerations and analyze a database of the trades of a German market maker and his cross section of end-user customers. We find that the market maker generally exerts low bargaining power vis-á-vis his customers. The dealer earns lower average spreads on trades with financial customers than commercial customers, even though the former are perceived to convey exchange-rate-relevant information. From this perspective, it appears that market makers provide interdealer market liquidity to end-user customers with cross-sectionally differing spreads.
9783865585202
INTERMEDIACION FINANCIERA
ESTRUCTURA DEL MERCADO
DISCRIMINACION DE PRECIOS
TIPO DE CAMBIO
ALEMANIA
DESINTERMEDIACION FINANCIERA CAMBIO EXTERIOR
338.52
Financial intermediation and the role of price discrimination in a two-tier market / Stefan Reitz, Markus A. Schmidt, Mark P. Taylor. - Frankfurt am Main : Deutsche Bundesbank, 2009 - 27 p. - Discussion paper. Series 1: economic studies ; no. 13/2009 . - Discussion paper (Deutsche Bundesbank). Series 1: economic studies no. 13/2009 .
Bibliografía: p. 18-20.
Though unambiguously outperforming all other financial markets in terms of liquidity, foreign exchange trading is still performed in opaque and decentralized markets. In particular, the two-tier market structure consisting of a customer segment and an interdealer segment to which only market makers have access gives rise to the possibility of price discrimination. We provide a theoretical foreign exchange pricing model that accounts for market power considerations and analyze a database of the trades of a German market maker and his cross section of end-user customers. We find that the market maker generally exerts low bargaining power vis-á-vis his customers. The dealer earns lower average spreads on trades with financial customers than commercial customers, even though the former are perceived to convey exchange-rate-relevant information. From this perspective, it appears that market makers provide interdealer market liquidity to end-user customers with cross-sectionally differing spreads.
9783865585202
INTERMEDIACION FINANCIERA
ESTRUCTURA DEL MERCADO
DISCRIMINACION DE PRECIOS
TIPO DE CAMBIO
ALEMANIA
DESINTERMEDIACION FINANCIERA CAMBIO EXTERIOR
338.52