Generally speaking, the term "interbank" refers to any dealings between two banks. In the same way that interstellar travel is a trip between two stars...interbank is activity between banks.
More specifically, there's what's called the "interbank market," a currency trading platform used by financial institutions. It allows banks to tap into the forex market ("forex" being short for "foreign exchange").
You run a big multinational banking conglomerate. One day, a client of yours, a member of the British royal family, does well in one of the casinos in Monte Carlo. His winnings are all in euros, which he deposits in your Monte Carlo branch. He flies back to London that night, and the next day wants to withdraw the cash in British pounds to fund a shopping spree.
So...you've received a bunch of euros, but after a very quick turnaround, have to deliver the funds in pounds. Time to use the interbank market to make the currency switch.
The market can also be used for more speculative trading. A bank may want to hedge against currency or interest rate risk using the interbank market.
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Finance: What is Electronic Communicatio...12 Views
Finance a la shmoop what is the electronic communication network or ECN?
all right it's the computerized and wired version of this for a small fee [Large computer network]
traders can plug in to a network to trade stocks you know think about it
like Facebook for stock traders only with less political ranting and fewer
photographs of babies and freshly cooked meat generally well generally speaking [A pan of meat and potato's appear]
ECNs are "off-market" that is they aren't really directly part of
an established trading system like the New York Stock Exchange or Nasdaq or one
of the other blessed exchanges they connect market makers directly to third
parties allowing them to trade to their heart's content there aren't a lot of
actual physical hands at work here most of the limit orders are matched
electronically the network charges its fee the transaction is processed and [Company share price appears]
life moves on so think about it like it's 2:00 a.m. on a Saturday and Joe who
likes to trade in his underwear don't ask us why it's just dying to sell a [Joe sits down at PC]
hundred shares of coke to Betty who likes to trade while head-banging to Led
Zep and you know likes to trade with Achmed who's saving money for an air
conditioner yeah well no sweat so this is perfect for anyone who wants to
become active in the trading of stocks but hates any kind of physical human [Man waving to woman and woman walks by]
interaction yeah don't worry the robot rebellion will soon be upon us and ECNs
will rule the roost
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