Foreign exchange dealing by a selection of Malta-based commercial banks

Abstract

With the liberalization of the Maltese economy, one of the principal services demanded by Maltese customers has been that of foreign exchange. Commercial banks have since been at the forefront in providing such services to the Maltese customers. They have also sought the foreign exchange market for their internal asset and liability management purposes. This dissertation attempts to assess the behaviour of domestic commercial banks in the foreign exchange market in the knowledge of the present Maltese monetary framework. An analysis of whether the Maltese Lira exchange rate respects the Fisher Open Relationship is first carried out, followed by a comparative analysis as to what types of operations systems and control standards relating to foreign exchange dealing are employed by the commercial banks. The study assesses the varying significance of foreign exchange business to a selection of Malta-based commercial banks and what products are used in this respect. The dissertation is carried out taking into consideration the increasing rate of change in international markets and the new challenges facing the Maltese financial system following EU membership. As a matter of fact, it also considers foreign exchange business in the present scenario of a pegged Maltese Lira and how this might change with membership in the Exchange Rate Mechanism II (ERM II) and eventually in the Economic and Monetary Union (EMU).