BIS central bankers’ speeches  1  Graph 1  Exchange rate mechanics At the most basic level, the exchange rate depends on the (net) global demand (by foreigners and Australians) for all things denominated in Australian dollars, relative to demand for all things denominated in foreign currencies.5 This includes goods and services available for purchase now and in the future, as well as claims on profits or returns to financial assets denominated in Australian dollars.
An example more immediate to current regulatory concerns is the issue of regulation and disclosure in the over-the-counter derivatives market. By design, this market, presumed to involve dealings among sophisticated professionals, has been largely exempt from government regulation. In part, this exemption reflects the view that professionals do not require the investor protections commonly afforded to markets in which retail investors participate.