MINIMAL SPANNING TREE GRAPHS AND POWER LIKE SCALING IN FOREX NETWORKS

Abstract

Correlation matrices of foreign exchange rate time series are investigated for 60 world currencies. Minimal Spanning Tree (MST) graphs for the gold, silver and platinum are presented. Inverse power like scaling is discussed for these graphs as well as for four distinct currency groups (major, liquid, less liquid and non-tradable). The worst scaling has been found for USD and related currencies. PACS numbers: 89.65.Gh, 89.75.Fb, 05.45.Tp The foreign currency exchange (FOREX, FX) market is the world largest financial market and the exchange rates have direct influence on all other markets because the price of any asset is expressed in terms of a currency. The FX market is strongly decentralized (transactions take place in many different places in the world), commonly accessible and extremely difficult to control. In addition, there is no friction (transactions are basically commission free). Due to time differences FX transactions are performed 24 hours a day, 5.5 day a week with maximum between 1 and 4 p.m. GMT,