What is unique about Switzerland is that they play all currencies against all other currencies. By contrast, in London, for example, the foreign exchange market is almost totally restricted to pound sterling–U.S. dollar transactions. In New York, it is the dollar’s price in terms of sterling, the German mark, the Japanese yen, and the Canadian dollar which preoccupies traders. But in Zurich, they will be juggling yen against pounds, German marks against Dutch guilders, Swiss francs against Italian lire, and work out a fair price for black-market rubles against the U.S. dollar. They will quote you a price on the Iranian rials, including the cost of picking them up in cash form in Teheran, and converting them into Swiss francs for deposit in Geneva under a number or a phony name.
The nerve centre of these operations are the foreign exchange trading departments of the major Swiss banks, always a very large room, packed with communications equipment. The traders—up to a dozen of them—sit around an oval-shaped desk of immense proportions. Each man has two telephones at his disposal, often three. Each phone has at least six separate outside lines. Thus each trader can literally be talking to a large number of people at the same time. On telephone one, line two, he may have a customer in Hong Kong. On telephone two, line four, he may have the FX desk of the Deutsche Bank in Frankfurt. On the same telephone, line six, he may have his counterpart in the bank’s branch in London on a standby basis. On telephone three, line one, he could have a money broker in Geneva. And three or four other lines might be flashing, as incoming calls stack up. The trader plays his telephones like an electronic organ—pushing keys, pulling stops, and creating quite a bit of noise in the process as he yells, and even screams, his instructions. The cacophony is added to by the constant clattering of Telex machines which line the walls of the huge room—often a dozen machines, all banging out information on market conditions from the various financial capitals of the world, or bringing in confirmations of transactions just completed minutes ago by telephone. Girls scurry around, tearing off urgent messages and placing them in front of the trader involved, who barely glances at them during telephone calls, signs his O.K., and passes them back. It often takes him just two seconds to finalize transactions involving tens of millions of dollars.
On the wall is a scoreboard, resembling those we are so used to from sports arenas. Prices of all major currencies, in terms of Swiss francs, are constantly being posted electronically—in line with the latest trades—thus keeping everyone in the room informed. Very quietly, in a corner, three other men pore over long sheets of paper. They post the so-called position sheets. Each trade is immediately entered, allowing the chief of the department to tell at a glance the net position of the bank. In one hour from opening, his traders might have sold $200 million and bought $210 million—leaving the bank a net position of $10 million. He tries to keep the two figures in close balance, unless of course he receives instructions to the contrary from the big guys.
It was into just such an atmosphere that Dr. Walter Hofer walked on the morning of November 5. He was accompanied by a young lady of perhaps twenty-two or twenty-three. In spite of the hectic activity, none of this escaped anyone in the room. It was unusual enough for the chairman of the General Bank of Switzerland to appear in the foreign exchange trading room. But to see him there, with a well-built young blonde—that was an event to be cherished, every minute of it.
Hofer walked directly to the chief trader.
“Herr Zimmerer, I would like to introduce Miss Mary Rogers.” He spoke in English. “She is with a newspaper in Los Angeles and would like to learn a little about your operations. Miss Rogers is the daughter of my wife’s sister who, as you probably do not know, has been living in the States for the last thirty years. So please take good care of her. When you’re finished, I would appreciate it if you could bring her up to my office. I would like to have a few words with you before the morning is over.”
“With great pleasure, sir,” replied Zimmerer, as Hofer turned and left as abruptly as he had come.
“Now please don’t go to any great trouble on my account. I know you must be very busy,” said the petite Miss Rogers, five feet two, with blue eyes to go along with her long blonde hair and a bosom which could not be totally overlooked, even if she was the big boss’s niece.
“No trouble at all,” mumbled Zimmerer, thinking oh my God and on a morning like this. The Swiss never have learned how to mix business with pleasure during working hours except at the highest echelons.
“Uncle Walter insisted I come into his bank today to look around, and he thought that this might be one of the most interesting spots. I know really nothing about the foreign exchange business. But I have worked on the business section of our paper for over two years now and am not totally ignorant. My mother and I are spending a week here in Zurich. It sure is a lovely city at this time of year. Are you from here?”
“Yes,” replied Zimmerer.
A man suddenly shouted across the room at him. “Herr Zimmerer, the Deutsche Bank in Stuttgart wants $25 million spot at 3.40 flat.”
“Sell ’em. Then everybody stop all trades. I want to know our exact positions to the franc in every currency within ten minutes. So hang up the phones and recheck everything.”
If he was to see Hofer, he wanted to know exactly where the department stood, right up to the minute.
Then another call. “Hey, Zimmerer, it’s Kellermann. He wants you right now. I’ll switch him to your phone—line five.”
Zimmerer picked up the phone, made a few notes, and hung up.
Turning back to Mary Rogers he said, “At the risk of oversimplifying things, why don’t I start by explaining what we’re doing here, and then give you an idea of how we do it. Would that be all right?”
She nodded.
“Good. I think the closest thing in your experience to our foreign exchange market here would be commodities. In Chicago they make markets for corn or wheat or soybeans, and many other similar products. There, like here, the market is split: they deal in what they call ‘actuals’ when the real product is changing hands right there and then, and they talk about ‘futures’ when a deal is made involving the delivery of the product at some time in the future—maybe in a month, three months, or even a year. Well, in foreign exchange it’s the same. We call the here and now transactions, where the product changes hands immediately in cash form, the spot market. Just think of it as where money changes hands on the spot. We call the futures market the forward market, and here also we deal for months or even years in advance of the actual closing of the transactions. But instead of agricultural products, the products in which we deal are different currencies—German marks, American dollars, Japanese yen—all of which have constantly changing prices depending upon supply and demand for them. Follow me?”
“Yes.”
“Fine. Now since we are in Switzerland, we usually go out from the Swiss franc. I mean, we usually price all the ‘products’ we deal in in terms of Swiss francs. Quite normal, I think.”
Again Mary nodded.
“Are you sure I’m not boring you?” asked Zimmerer.
“Oh no, please go on. It’s just fascinating.”
I’ll bet, thought Zimmerer, but plunged on anyway.
“Right. Now let’s take the American dollar. As you just heard that fellow yell from across the room, we are buying dollars at the spot rate of 3.40 francs. This can change from minute to minute, but the ultimate range is established by the government. The ‘most’ francs you can get for a dollar, under the rules agreed to in Switzerland in spring, 1973, is 3.4535. And the ‘least’ you can get is 3.3015. That’s what we call the upper and lower intervention points.”