Financial intermediation and the role of price discrimination in a two-tier market /

Financial intermediation and the role of price discrimination in a two-tier market /

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...

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Bibliographic Details
Main Author: Reitz, Stefan
Other Authors: Schmidt, Markus A., Taylor, Mark P.
Format: Book
Language:English
Published: Frankfurt am Main : Deutsche Bundesbank, 2009
Series:Discussion paper (Deutsche Bundesbank). Series 1: economic studies no. 13/2009
Subjects:
INTERMEDIACION FINANCIERA
ESTRUCTURA DEL MERCADO
DISCRIMINACION DE PRECIOS
TIPO DE CAMBIO
ALEMANIA
DESINTERMEDIACION FINANCIERA
CAMBIO EXTERIOR
Online Access:https://www.econstor.eu/bitstream/10419/27667/1/200913dkp.pdf

MARC

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520 3 |a 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. 
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700 1 |9 1679  |a Taylor, Mark P. 
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