Facts about the latest forex scandal

Authorities have been investigating claims that some forex traders in the City of London have, for years been collaborating to fix foreign exchange rates. This latest investigation comes barely two years after the revelations that top banks were rigging the Libor interest rate.

So, what is this latest scandal?

Authorities are investigating at least 10 UK and foreign banks in relation to rigging currency rates in the foreign exchange market. This so-called Forex market has over £3 trillion traded on it each day and is used by banks and other financial institutes to buy and sell currencies to one another.

The investigation is looking into whether the banks have been collaborating to set the benchmark rates, which are released each day at 4pm. The benchmark rate was developed for corporate customers who wanted a simple and transparent rate set for them each day. Manipulating this rate could be very valuable for those who collaborated.

It is alleged that several forex traders have been colluding over a number of years via instant messaging services to discuss what would be the most favourable rate to set the day’s benchmark. Corporations who use this benchmark may actually end up losing money or not profiting as they should if the benchmark has been rigged.

The investigation is still ongoing, but a number of forex traders have been suspended until the investigation is concluded.

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